Micro E-Mini Nasdaq Futures: Everything You Should Know

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The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. This article is the opinion of Optimus Futures.

In 2019, the Nasdaq-100 index gained 37.96%, followed by 47.58% in 2020.

Traditionally, investors who want to put money to work in the index use mutual funds or exchange-traded funds (ETFs) like the QQQ.

More recently, retail traders have begun to use options.

But there’s a capital-efficient product that most aren’t aware of – CME Group Micro E-mini Nasdaq-100 futures.

At ⅒ the size of regular Nasdaq futures, Micro E-mini Nasdaq-100 futures carry all the benefits of regular futures in a bite-sized portion.

This article helps familiarize newer traders or those who haven’t dealt with Micro E-mini Nasdaq-100 futures.

You will learn what Micro E-mini Nasdaq-100 futures are, how they relate to the stock market, the advantages of micro futures and how to get started trading them.

What Are Micro E-Mini Nasdaq-100 Futures (MNQ)?

Futures contracts are leveraged products that control a set amount of an asset. For example, one Micro E-mini Nasdaq-100, or MNQ contract, controls $2 times the Index or around $30,000 of notional value.

As a leveraged product, traders are only required to put down a portion of the contract's total value.

The Micro E-mini Nasdaq-100 futures has an initial margin requirement of $1,650 and a maintenance margin of $1,500.

Like options, futures contracts have a specific date, known as the settlement date.

Unlike options contracts, which give owners the right, futures contract owners have an obligation to fulfill their contracts.

So, if you own a futures contract for crude, come settlement time, you are required to take delivery of all that oil.

Because Micro E-mini Nasdaq-100 futures can’t convert into an actual asset, they settle as cash. That means you are paid (or you pay) the difference between the contract price and the spot (current price) of the index.

Like E-mini Nasdaq-100 futures, or NQ, micro futures track the Nasdaq-100 index. The key difference is that the micro contract controls ⅒ the notional value as a regular mini contract.

So, each tick in a micro contract, measured in 0.25 index points, is worth $0.50 compared to $5 for the E-mini contract.

Which Technology Stocks Cause Movement in Nasdaq Futures

The Nasdaq-100 is often referred to as a tech index because of the disproportionate influence of tech companies.

If you look at the components of the Nasdaq-100, you’ll find that the top 10 companies make up more than 55% of the index’s total weight.

In fact, technology stocks make up almost 65% of the total index by weight.

Because the MNQ tracks the Nasdaq-100 index, the components drive the price of Nasdaq-100 futures.

So, if you see Apple Inc. AAPL, Microsoft Corp. MSFT, Amazon.com Inc. AMZN and Alphabet Inc. GOOGL down on the day, chances are the Nasdaq-100 and the corresponding futures will be trading lower.

Advantages of Trading Micro Nasdaq Futures Versus Actual Stocks in the Nasdaq Index?

The capital efficiency associated with Micro E-mini Nasdaq-100 futures has been discussed.

Here are some additional advantages of trading futures over purchasing individual Nasdaq stocks:

• Continuous trading: Futures contracts trade from 7 p.m. EST Sunday until 5 p.m. EST Friday with breaks from 5 p.m. to 6 p.m. weekdays.
• Centralized clearing: Unlike stocks, futures contracts clear at one centralized exchange 
•  No pattern day trading: Futures accounts aren’t subject to pattern day trading rules and limitations.
• Highly liquid markets: Individual stocks can have wide spreads and low liquidity. MNQ contracts have deep liquidity pools, especially during regular stock market trading hours.
• Less complexity: Traders trying to replicate the Nasdaq-100 index will need to own all 100 stocks in the right proportions while constantly selling and buying shares to maintain the balance. Nasdaq futures eliminate the need to make these constant adjustments.
• Make bets in both directions: While some stock accounts are restricted from short selling, futures accounts make it easy to go long or short the MNQ.

 Who Trades Micro E-Mini Nasdaq-100 Futures and Why?

Micro E-mini Nasdaq-100 products were designed for both institutional and retail traders.

Oftentimes, retail traders shy away from E-mini products because of the high leverage relative to their portfolio size.

Micro products give retail and institutional traders more control, allowing them to optimize their strategies.

Generally, traders use MNQ futures for either speculation or hedging.

The leverage and capital efficiency provided by Micro E-mini Nasdaq-100 futures allows retail and institutional investors to go long or short the Nasdaq-100 using only a fraction of their account.This can also work well for hedging.

Investors with most of their portfolios invested in individual equities can use the leverage of the MNQ to mitigate risk.

For example, if you expect Tesla Inc. TSLA, Amazon and Apple to outperform the broader index, you can short the Micro E-mini Nasdaq-100 futures contract against those stocks, creating a directionally neutral portfolio.

How To Get Started Trading Micro E-Mini Nasdaq-100 Futures

Anyone looking to trade Micro E-mini Nasdaq-100 futures can be up and running within a matter of hours with Optimus Futures.

Traders can open a futures account with Optimus Futures for as little as $100 and gain access to its flagship Optimus Flow platform and automated trading journal.

You can explore all the futures contracts available, including a wide array of micro and regular-sized products in everything from currencies to commodities.

Learn more about Optimus and Micro E-mini futures here.

Or Check out Benzinga’s Full Optimus Futures Review

This matter should be viewed as a solicitation to trade. Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. CME Micro contracts generally have a value and margin requirement that is one-tenth (10%) of the corresponding regular contract. The cost of trading Micro contracts is higher than regular contracts, when measured as a percentage. Commission rates are not always one-tenth of the rate for regular contracts. Exchange and NFA fees are not proportionately reduced. Frequent trading of Micro contracts further compounds the cost disparity. Futures transactions are leveraged, and a relatively small market movement will have a proportionately larger impact on deposited funds. This may result in frequent and substantial margin calls or account deficits that the owner is required to cover by depositing additional funds. If you fail to meet any margin requirement, your position may be liquidated, and you will be responsible for any resulting loss.

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.