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A Detailed Guide to E-Micro Forex Futures

09 Sep 2023

Introduction

Many types of asset classes and markets are available for trading. This makes it challenging for a new trader to select the type that best suits their styles and aspirations. 

Futures trading has different features and benefits that help you achieve your trading goals. One type of futures contract is E-micro Forex Futures. The Chicago Mercantile Exchange (CME) offers them and features reduced contract sizes, margin requirements, and tick values.  

Before delving into the definition of E-micro Forex Futures and its pros and cons, you must learn about futures contracts. 

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What are futures contracts?

A futures contract refers to an agreement where two parties buy and sell an underlying asset at the end of a contract term at an agreed-upon price. 

An example of a futures contract is an agreement between the manufacturer of men’s clothing and a cotton-producing farmer. Both depend on each other. The clothing manufacturer wants to buy cotton at an affordable price, and the farmer wants a guarantee that the excess cotton supply will not reduce the price they receive. The futures contract hedges the risk of both parties. 

The farmer can incur a loss if the market price rises when the contract term ends. If it falls, the clothing manufacturer can suffer. But, with a futures contract, both parties have hedged their risk. 

The Forex Futures market follows a similar concept. 

What are E-micro Forex Futures?

E-micro Forex Futures are a kind of currency futures contract. They are a ‘micro’ form of the regular Forex Futures contract. Their objective is to allow new traders to start with Forex Futures trading without investing a large amount of money, which is otherwise required to invest in regular Forex Futures contracts. 

Additionally, E-micro Forex Futures are one-tenth of a regular E-mini futures agreement in size.  A regular Forex Futures contract comprising around 100,000 units requires a significant amount of money for investment. But the allotment size for an E-micro Forex Futures contract is 10,000 units. Due to their smaller size, they are well-suited if you desire to trade Forex Futures with total exposure lesser than regular-sized contracts.

E-micro Forex Futures are listed on the CME global index. The advantage of a centralised exchange is that all investors trade with the same rates and stats. This does not happen when you trade in the Forex trading markets. Forex brokers manage the trades, leading to fluctuations in prices. CME gives investors the benefit of standardisation. 

Currency pairs in E-micro Forex Futures

Six currency pairs exist in E-micro Forex Futures. These include:

  • US Dollar to Australian Dollar
  • US Dollar to Euro
  • US Dollar to Canadian Dollar
  • British Pound to US Dollar
  • US Dollar to Swiss Franc
  • US Dollar to Japanese Yen

Pros and cons of investing in E-micro Forex Futures

The pros of E-micro Forex Futures include lower allotment sizes and a centralized exchange. Unlike traditional Forex trading markets, this exchange ensures that all investors trade at the same rates and stats.

However, these instruments carry a degree of risk as well. This is because of the nature of futures contracts. The futures market lets you hedge your risk by entering a contract with a predetermined price. But you must anticipate the market’s movement and act accordingly. 

The apparent hitch here is that no beginner or seasoned investor can predict the market accurately if you speculate that a particular currency’s price will rise but drop; you may have to lose part of your investment since your commitment would be to execute the contract on predetermined terms. 

Conclusion

Many financial instruments are being offered in the market. E-micro Forex Futures are one such type that gives more and more people access to investment opportunities. They ensure that every type of investor can enter the market. 

While you may have the skills and investing expertise, you could lack funds. This makes it challenging to trade in the Forex Futures market since the allotment size is near 100,000 units. E-micro Forex Futures eliminate these barriers. You need one-tenth of the money to start investing, with the average lot size comprising 10,000 units. E-micro Forex Futures, E-mini Forex Futures, and other such instruments allow you to trade Forex Futures and leverage the benefits of good spreads, lower risk, and centralized exchange.

 

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