When it comes to trading futures, many traders find themselves debating between either mini or micro contracts. Knowing the key differences and features of each can help you decide which is best for your needs. In this guide, we’ll take a look at the pros and cons of mini and micro futures contracts, so you can make the best decision for your trading strategies.
What Are Mini Futures Contracts?
Mini futures have a smaller contract value than their full size contracts. Mini futures contracts usually represent either 10 or 20 times the size of a single underlying contract. Given their larger size, they are ideal for experienced traders who can handle a greater degree of risk. Because of this, mini futures contracts tend to trade with more open interest and greater liquidity.
Example mini contract size:
- Nasdaq 100 (NDA) contract size — $100 X Nasdaq Index Points
- E-mini Nasdaq (ENQ) contract size — $20 X Nasdaq Index Points
What are Micro Futures Contracts?
Micro futures contracts are a smaller version of the mini futures contracts and allow traders to access smaller market movements. They usually represent 1/10th or 1/20th of a single underlying contract, providing leverage that can make money management easier. Some exchanges have recently introduced even smaller micro-lots, representing just 1/50th of an underlying contract size. This makes them perfect for traders who want to trade with greater precision while managing risk and avoiding larger positions sizes.
Example mini contract size:
- Nasdaq 100 (NDA) contract size — $100 X Nasdaq Index Points
- E-mini Nasdaq (ENQ) contract size — $20 X Nasdaq Index Points
- Micro Nasdaq (MNQ) contract size — $2 X Nasdaq Index Points
Leverage with Mini and Micro Futures
Mini and micro futures contracts take advantage of leverage to magnify small movements in the underlying contracts. With micro futures, traders are able to open larger positions without having to risk more money. The smaller size of the contracts also decreases transaction costs, making them more cost-effective for traders who only wish to trade the smallest market movements. However, it’s important to remember that traders should always be aware of the risks associated with these higher leveraged trades.
What are the main differences?
Mini futures contracts are larger than micro futures and as a result, they require a greater initial investment. While mini futures may carry less profit potential due to the larger size of the contract, they may also be less risky due to their reduced leverage. On the other hand, micro futures carry more risk due to their small size and higher leverage but can offer greater reward potential. Both mini and micro futures contracts can provide traders with an exciting way to capitalize on price movements in the market without having to risk too much capital.
Sizing & Applying Risk Management Strategies on Minis & Micros.
When trading mini futures and micro futures, it’s important to consider the right sizing and risk management techniques. For instance, small price movements in mini futures may cause greater losses or profits compared to micros due to the relative large size of mini contracts. That’s why traders should assess their ideal trade size and adjust their stop-loss and take-profit orders accordingly. It’s also important to remember that all trades should be liquidated before expiry so as not to unnecessarily expose your positions to market risks.