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Capitalizing on Equity Market Volatility with Micro E-Minis

| March 8, 2024 | By

Listed on the Chicago Mercantile Exchange (CME), the Micro E-minis provide active futures traders with unparalleled equities market flexibility. Facing the premier U.S. indices, this group of products allows for the direct engagement of large, medium, and small-cap stocks.

During the 2020 novel coronavirus (COVID-19) pandemic, equity index futures became exceedingly popular contracts. Beginning in late February, the world’s capital markets attempted to “price-in” the contagion’s implications, creating extreme trading conditions in the process. While many market participants fled from the enhanced volatilities, some found unprecedented opportunities in CME Micro E-mini futures.

Storm Clouds on the Horizon

Decades from now, historians will look at Monday, Feb. 24 and Tuesday, Feb. 25 as being the kickoff of the COVID-19 market panic of 2020. One can argue that congressional insider trading and a January gold rally are evidence that the “smart money” was already aware of the brewing crisis. However, the financial world officially took notice during the market crashes that occurred on these two days.

Following weekend reports that coronavirus cases surged outside of China, traders and investors began reducing risk exposure on Feb. 24. As a result, the Dow Jones Industrial Average (DJIA) closed 1,031 points lower (-3.56 percent), posting its largest loss in three years. The S&P 500 and NASDAQ Composite also saw heavy selling, losing more than 3.25 percent on the session.

The following day, COVID-19 fears escalated as ominous reports from Italy and South Korea further unhinged the markets. Skepticism turned into a full-blown panic, and a mass exodus from risk assets ensued. For the Feb. 25 session, the DJIA and S&P 500 fell by more than 3 percent.

Two-day losses were the worst they had been in years, topping 6.25 percent in each of the leading American stock indices. For astute traders, shorting the CME’s Micro E-minis brought windfall profits.

Trading with the Micro E-minis

Out of chaos comes opportunity. Although the market tumult of late February 2020 brought traditional equities investors to their knees, it created profitable opportunities for those trading the Micro E-minis.

During periods of extraordinary volatility, the lineup of CME Micro E-mini products offers participants several key advantages. These benefits allow active traders to post gains while others are relegated to the sidelines or, worse, a red ledger:

  • Capital efficiency: One of the biggest upsides to Micro E-mini contracts is that risks and rewards are fully customizable. Minimum tick values range from $0.50-$1.25, giving you the ability to hold open positions during periods of exceptional pricing volatility. The result is not being prematurely stopped out of lucrative trades.
  • Liquidity: During periods of stock market volatility, the Micro E-mini DOW, S&P 500, NASDAQ, and Russell 2000 feature strong depth. Deep markets promote consistent order fills and minimal slippage―two items essential to profitable long-run trading.

Diversity: No matter your equities market fancy, CME Micro E-mini futures have a contract for you. To address large caps, the Micro E-mini DOW (MYM) is ideal. As a broad-based equities barometer, the Micro E-mini S&P 500 (MES) may be targeted.

For tech, growth, and small-cap exposure, the Micro E-mini NASDAQ-100 (MNQ) and Micro E-mini Russell 2000 (M2K) are suitable instruments. Each contract demonstrates unique levels of volatility and participation in accordance with the underlying equities index.

The Micro E-minis are tailor-made for attacking panic-stricken markets, such as those seen during the onset of COVID-19. Risk may be readily adjusted to evolving market conditions, and contracts are inherently liquid. When combined with the leading large, medium, and small-cap U.S. equities indices, these attributes make CME Micro E-mini futures a great way to swing volatility in your favor.

Getting Started with CME Micro E-mini Futures

Since its launch in 2019, the CME’s lineup of Micro E-mini products has been a hit. Consistently robust participation has driven volatilities, making these contracts popular speculative and risk management vehicles.

Sometimes, the best way to become familiar with a new product is to talk with a bona fide expert. To learn how the Micro E-minis can help you achieve your financial goals, schedule a free one-on-one conversation with a StoneX market pro today.

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