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Trading E-Minis Noble DraKoln, Investopedia 04.06.08, 10:28 AM ET
When it comes to trading mini-sized futures contracts, the average trader immediately thinks of the Chicago Mercantile Exchange's (CME) eMini markets. Rarely do traders think of mini gold, mini silver or mini corn. But not too long ago, these markets dominated the small trader landscape.
While larger exchanges such as the CBOT and the CME offered commodity contracts with margins in the thousands of dollars, the MidAm offered commodity contracts for as little as $100, making it the great equalizer of commodities trading. In other words, the MidAm made speculators with a small amount to invest feel comfortable with the risk of futures trading. But although this exchange has dissolved, the advantage of mini futures remains. Special Offer: Transocean (RIG) trades about 10% below its all-time high of $149. Is this offshore drilling leader ready to run to new highs or is the best action elsewhere? Click here for the opinion of the smart money in Block Traders' Oil and Gold Monitor.For example, in 2003, when the MidAm became a part of the CBOT, gold had reached a low of $322. But between 2003 and 2008, gold shot up to the $1,000 level and oil broke through the $100 per barrel barrier. With this increase in value and volatility, the margins for full-sized commodity contracts practically tripled--mini contracts, however, remained at reasonable levels. (For related reading, see "Trading Gold And Silver Futures Contracts.") Figure 1: Margins For Full-Sized Futures Contracts
Figure 2: Margins For Mini Futures Contracts
When there is inflationary pressure on global commodities, it becomes very expensive for small speculators to even attempt to participate in, much less profit from, highly volatile markets. As such, trading the mini-CBOT contracts is the best way to get involved without making a huge capital commitment. Special Offer: How would you like to invest using the strategies of legendary investors Ben Graham, Warren Buffett, Peter Lynch and Martin Zweig? Validea's Hotlist screens for stocks using proven guru strategies. Click here for immediate access to the 10 current buys on Validea's Hotlist.In the past, mini hog and cattle contracts were regularly traded on the MidAm, but they never really found an audience in the electronic markets and promptly were eliminated as contract offerings. This same problem found its way into the mini-option market. When the MidAm traded, the mini-option market was a vital component in helping traders develop effective risk management strategies around hedging. The switch to the CBOT eliminated the mini-options market and limited traders to using full-sized options to protect themselves. (For related reading, see "Practical And Affordable Hedging Strategies.") This article is from Investopedia.com , the Web's largest site dedicated to financial education. Click here for more educational articles from Investopedia. More On This Topic
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