One of the challenges beginner Forex and Futures traders face is the need to meet minimum lot or contract requirements. These minimums are often regarded as too costly for many traders. This challenge prompted the introduction of Micro Trading. In this post, I’d like to answer the question: what is Micro Trading? What is futures and forex micro trading? and how to trade a micro trading account?
Micro Trading is the discipline of trading smaller-than-normal lot or contract sizes. Micro trading has recently gained significant traction in the Forex markets and now the Futures markets with the introduction of micro e-mini instruments.
This post is designed to give an overview of Micro Trading in Futures and Forex. I will share my thoughts on its pros and cons as well as give a comparison with its larger counterparts. I will also provide a list of popular Forex and Futures brokers that support micro trading.
Table of Contents
- Micro Trading
- Forex Micro Trading
- Futures Micro Trading
The advent of micro trading accounts in recent years has opened the doors to a more inclusive Forex and Futures market. The introduction of Micro Trading accounts encouraged more financial speculators – investors and traders alike – whom would otherwise have been excluded from participating in these markets because of minimum requirements.
Essentially, Micro Trading is a type of account that can trade amounts that are smaller than traditional sizes. This has made Micro Trading a popular option for many traders, particularly beginning traders and many retail investors.
As Futures and Forex are generally viewed as riskier instruments, investing in smaller lot sizes (for forex) or contract sizes (for futures) is one way for traders to mitigate risks by committing capital at more manageable level. Smaller sizes is also perfect traders wanting to trade multiple lots or contracts to scale into and out of positions. Its also ideal for using a fixed dollar amount risk reward strategy.
Popularity of Micro Trading
The Futures and Forex market have evolved to be two of the most actively traded financial markets in the world.
Through the years, these financial markets have seen huge growth in popularity among retail market participants.
Because retail speculators generally have smaller trading capital and are more inclined to be sensitive to trading costs, the Futures and Forex market with the aid of brokers introduced the idea of Micro Trading accounts.
The popularity of micro trading forex markets has in recent times promoted the CME to introduce micro e-mini futures.
Common Types of Forex and Futures Accounts
Typically, there are 2-3 types of accounts in the Forex and Futures market:
- Forex: Micro, Mini, and Standard
- Futures: Full contracts, E-mini and Micro E-mini
Although all accounts have the same functionalities, the distinguishing element is the minimum lot (for FX) and minimum contract sizes and margin amounts (for futures) per account.
For Forex, Standard accounts generally have the largest minimum sizes while Micro tends to have the smallest minimum. For Futures, Full contracts represent the full contract, E-mini was later introduced to make futures trading more accessible to retail traders. The E-mini ES the small contract (1/10th the size) to the full S&P Futures contract became hugely popular. Now the ES daily volume exceeds that of the original contract. Now the Micro E-mini is the yet smaller version (1/10th the size) of the ES.
Who will benefit the most in trading with Micro Accounts?
Micro accounts were generally created for the benefit of retail investors who could either be:
- Beginning/Novice traders who have smaller accounts or more risk averse
- Experienced traders testing new strategies or wanting to trade multiple lots of contracts to scale in or out of positions or use a risk reward strategy based on a fixed dollar amount per trade.
Let’s take a closer look at Micro Trading in the Forex and Futures in the following sections.
Forex Micro Trading
The Foreign Exchange market or commonly known as Forex is the largest financial market in the world – both for volume and value traded. It covers about 170 different currencies to which the EUR/USD is among the most traded forex pairs globally. The Forex market operates 24/7.
Because of the necessity to trade forex markets with a leveraged account to achieve the required volatility to trade. Currencies are typically traded in lots. Each lot represents a specific amount of the base currency. Typically 100,000 units for example. This leverage exposes traders to significant risk. Particularly market movement around economic or political events. This is why risk management is critical.
To trade a stand lot size brokers require a margin. This is effectively an amount that traders need to put forward in order to trade a single lot. Often this amount is significant.
Some brokers offer huge leverage options with limited margin. Sometimes 500:1 leverage. This exposes beginner traders to huge risk, well beyond their financial means to cover if a trade goes bad.
One way of managing risks is to limit exposure is a more manageable trade size. This is where Forex Micro Trading comes in.
Forex Accounts: Micro, Mini, and Standard
There are three common types of Forex accounts: Micro, Mini, and Standard. The main distinction among the three accounts is the lot sizes that an account user can transact. The lot size corresponds to a pip value. Which is the smallest increment of price movement. The table below lists the lot and pip value for each of these accounts.
|Lot Size||Units of Base Currency||Pip Value*|
|Standard||100,000 (10 mini lots)||$10|
|Mini||10,000 (10 micro lots)||$1|
*Pip Values are different per currency pair. For illustration purposes, the values above reflect pip values for EUR/USD pair
When a trader is placing a buy order of, let’s say, 1 micro lot of EUR/USD. That translates to buying 1,000 Euros (the base currency).
Micro accounts operate the same as Standard and Mini accounts. Traders simply trade at smaller size requiring less margin without huge leverage.
Trading in Micro lots/ Micro accounts is generally referred to as Micro Trading.
Pros and Cons
There are several key benefits to trading micro lots. These are summarized in the following table:
- Smaller Lot Sizes to manage risks – Beginner traders without significant funding can trade forex without the need to take on the significant risk associated with low margin leveraged accounts.
- Dollar based risk reward strategies – Micro lots are perfect for using a fixed dollar amount risk per trade strategy. Multiple lots offer the opportunity to fine tune dollar risk based on number of pips a stop loss is placed.
- Smaller amount of upfront capital – Minimum to open a micro forex account will vary per broker. But generally to open a Micro forex account requires less capital funding.
- Scale in and out of positions – Trading multiple lots offers the opportunity to scale into or out of positions.
- Smaller Lot Sizes = smaller profits – Less risk ultimately means less reward. Expect smaller profits in Micro accounts relative to Mini and Standard
- Higher spreads and fees – Mini/Standard accounts offer lower spreads and / or relative fees compared to the smaller micro accounts
Forex Micro Account Brokers
Avatrade is a licensed broker mainly offering Forex, Cryptocurrencies, Stocks, Commodities, and CFDs.
Its trading platform is accessible via desktop, tablet, as well as mobile. Avatrade offers a range of platforms and multilingual customer service representatives.
As a Forex broker, Avatrade is a globally regulated broker, offering over 50 currency pairs as well as competitive Forex trading Spreads – can go as low at 0.70 pips.
AvaTrade requires a minimum of $100 upfront capital to open an FX account with minimum micro lot sizes of 0.01 (0.01).
XM Markets offers Forex, Precious Metals, Commodities, and Equity Indices with a choice of over 16 trading platforms (includes MT4, MT5, XM WebTrader and a mobile app).
As a Forex broker, XM markets offer more than 55 currency pairs with the flexibility of trading with Micro and Standard accounts.
For its Micro accounts, XM markets only require a minimum $5 deposit. While spread on major currency pairs can go as low as 1 pip.
A huge competitor in the Forex brokerage space, AxiTrader gained popularity due to its very competitive pricing, commissions and spreads. It utilizes the widely used MT4 trading platform, offering it for free for AxiTrader clients.
AxiTrader offers two types of accounts: Standard and Pro. A Pro account offers tighter spreads at a higher cost per trade per side.
Axitrade offers micro lot trading and a minimum deposit of $0.
EasyMarkets offers access to multiple instruments – from Forex to Precious Metals to Cryptocurrencies – granting access to various platforms (easyMarkets app, Web platform, and Metatrader4).
easyMarkets gained popularity with its beginner-friendly features that include freeze rate and deal cancellation.
Another standout is easyMarket’s fixed spreads – an uncommon feature among FX brokers.
easyMarkets is one of the proprietors of online Forex trading. It boasts of many risk management features that will help risk-averse FX traders. One of which is offering Micro accounts with only $25 as a minimum upfront capital. Moreover, lot sizes can go as low as 0.01.
Over 50 years of experience in the financial markets, ETX provides access to over 5,000 markets around the globe – from Forex, equity indices to commodities.
Trading Forex on ETX will give you the benefit of tight spreads (EUR/USD for 0.6 pips) and access to over 60 currency pairs.
Minimum deposit to open an account is set at $100 with a minimum micro lot of up to 1000 units or 0.01.
Futures Micro Trading
The futures market is my market of choice. the E-mini S&P 500 or ES offers all the attributes of an ideal day trading instrument. Its liquid, offer excellent price movement and price patterns.
If you are new to futures trading and would like to find out more about the futures market check out my post – What are the best markets for day trading.
In the following section I will detail the options to trade micro e-mini contracts for futures traders.
What are Micro E-Mini Futures?
Micro e-mini futures represent 1/10 of the contract size of its e-mini counterpart.
CME currently offer 4 micro e-mini futures contracts to trade. See list of instruments below.
Popularity of the Micro E-mini
The CME Group, the pioneer of the Micro E-mini, launched this new product category last May 6, 2019. Since then, the product took off, hitting a volume of 417,000 contracts a month after its introduction.
The CME Group launched the Micro E-minis for one reason: the notional value of the E-mini products skyrocketed from $47,000 in its launch in 1997 all the way to $145,000 in mid-2019 – making it an affordable option for many.
With prices surging, the CME Group decided to launch the Micro E-mini to make the Futures market more accessible and less burdensome for individual traders. Generally, each Micro E-mini contract represents 1/10 of the value of the E-mini counterpart.
To date, the CME Group introduced their 4 leading indice instruments as the proprietary products of the Micro E-mini suite:
- Micro E-mini S&P 500 Index Futures (Ticker Symbol MES) (Exchange CME)
- Micro E-mini Nasdaq- 100 Futures (Ticker Symbol MNQ) (Exchange CME)
- Micro E-mini Russell 2000 Index Futures (Ticker Symbol M2K) (Exchange CME)
- Micro E-mini Dow Futures (Ticker Symbol MYM) (Exchange CME)
Futures Contracts: E-Mini versus Micro E-Mini
The following is a quick comparison of E-mini futures contracts and their micro e-mini counterparts:
One of the reasons for the popularity of the Micro E-mini is the lower margin and contract costs. Micro E-mini contracts represent 1/10 or 0.10 of the value of their E-mini counterpart.
Let’s take the heavily traded S&P 500 Futures contract as an example. Assuming an S&P 500 Futures contract trading at a price of $3,000:
A typical S&P 500 E-mini contract has a contract unit price of $50 per point. At $3,000, the notional value of the contract is $50 x $3,000 = $150,000
In contrast, a typical Micro E-mini contract is only 1/10 the size of the E-mini translating to a contract unit price of $5 per point. At $3,000, the notional value of the S&P 500 Micro E-mini contract is $5 x $3,000 = $15,000.
The smaller contract size requires less margin to trade. It also represents a significantly lower amount of capital being controlled by a trader per contract.
Per Tick Cost
The Micro E-mini contract has 4 ticks per point. The same as its E-mini counterpart. The significant difference lies on the cost per tick. The table below offers a comparison between the two contracts:
|S&P 500 Contracts||Tick Size||Contract Unit Price||Per Tick Cost|
|E-mini Future||0.25||$50||$12.50 ($50 x 0.25)|
|Micro E-Mini Future||0.25||$5||$1.25|
($5 x 0.25)
As you can see from our examples above, the Micro E-mini contract offers significantly lower tick dollar value. This is perfect for trading smaller accounts.
Despite being smaller in size, the Micro E-Mini shares the same contract specifications with a regular E-Mini contract. Here are the core elements that make up a typical Micro E-mini Contract:
- Expiration – Expiration dates vary depending on the instrument. For more information about contract expiration see my post – When do futures contracts expire?
- Tick Size – Defined as the minimum price fluctuation of a future contract. This varies per instrument but structured in the same increments with the E-mini counterpart. A tick represents a faction of a point and the amount varies per instrument.
Below is a table summary of Micro E-mini contract specifications of the top 4 micro e-mini contracts offered by CME:
|Product||Contract Unit||Tick Size||Per tick|
|Micro E-mini S&P 500||$5 x S&P 500 Index||0.25 points||$1.25|
|Micro E-mini Russell 2000||$5 x Russell 2000 Index||0.10 points||$0.50|
|Micro E-mini NASDAQ 100||$2 x Nasdaq-100 Index||0.25 points||$0.50|
|Micro E-mini Dow Jones Industrial Average||$0.50 x DJIA Index||1.0 points||$0.50|
Pros and Cons
Trading Micro e-mini futures contracts offer several key pros and cons (similar to those offered by forex micro accounts):
- Lower entry point for beginner traders – Lower capital requirement for beginner traders. Traders can trade with smaller initial deposits, smaller contract size with smaller margin requirements.
- Reduced risk – Smaller contract sizes without increased leverage reduces risk exposure for newer traders
- Scale in and out of positions – Trading multiple lots offers the opportunity to scale into or out of positions.
- Dollar based risk reward strategies – Micro lots are perfect for using a fixed dollar amount risk per trade strategy.
- Higher costs – The Micro contracts have higher per side and round turn costs on a percentage basis.
- Smaller size = smaller profits – Less risk ultimately means less reward. Expect smaller profits when trading micro e-mini’s relative to E-mini and standard contracts.
Cost comparison of trading Micro e-mini versus e-mini futures
Let’s take a look at the comparison on the costs associated with trading micro e-mini versus e-mini futures.
The table below compares the S&P 500 and NASDAQ 100 Futures contracts. it compares the Micro E-mini and E-mini contracts costs on a percentage basis – Cost figures from AMP Global’s All-in Cost Calculator
You can see that the Micro E-mini futures of all major indices translates to higher costs when viewed on a percentage basis.
Futures Micro Account Brokers
Because of the growing popularity of Micro trading, many Futures brokers offer Micro Futures as part of their product offering. Below is a list of recommended brokers with short descriptions on each.
If you would like to learn more, I recommend visiting my previous post – Best Brokers for Trading Futures where I take a detailed view on each broker mentioned below.
AMP futures is a solid broker option for beginner traders. They offer access to over 50 trading platforms for free or at a discounted rate. AMP futures offer low commissions and fees as well as low minimum opening balance ($100). Micro accounts require even a smaller minimum requirement of $25.
Commissions for Micro accounts ranges from 0.27 (per side) and 0.54 for the major Futures indices.
AMP futures offers access to the 4 CME micro e-mini contracts.
NinjaTrader, partner with Dorman Trading and Phillip Capital, is a platform that serves as a gateway to the Futures market. NinjaTrader8 is a proprietary platform that is well-known for its fantastic trading platforms Ninjatrader 7 and Ninjatrader 8.
NinjaTrader also offers competitive commissions and fees on a 3-tier basis. Costs are dependent on the following platform levels: Lifetime, Lease, and Free – where the Lifetime account enjoys the least costs.
Minimum opening balance stands at $400 for a futures account.
NinjaTrader offers access to the 4 CME micro e-mini contracts.
Interactive Broker is an award-winning and well-recognized broker, offering a broad range of products – from stocks, bonds to futures and forex – in more than a hundred markets operating in 33 countries. IBKR also accommodates about 23 currencies allowing account funding in multiple currencies.
Interactive brokers is recommended for more experienced traders. An account with IBKR requires a minimum capital deposit of $10,000. In 2019, however, the minimum was scratched to $0 but with the exception of meeting at least $10 in monthly commissions.
Interactive brokers offers access to the 4 CME micro e-mini contracts.