On April 19, Eurex will introduce ‘micro’ futures on the EURO STOXX 50® and DAX® indices, enabling a larger pool of investors low-cost access to the liquid derivatives market tracking two of the world’s most used equity benchmarks.
The new contracts have a value that is several times smaller than that of traditional, ‘large’ futures. This responds to growing demand globally for more cost-efficient contracts that are affordable for small-account investors, Eurex said in a press release. A lower value also allows for more flexible and targeted trading and hedging strategies.
The exchange will also introduce micro futures on Switzerland’s SMI Index.
The new contracts have a value of 1 euro per index point in the case of the EURO STOXX 50 and DAX (compared, respectively, with 10 euros and 25 euros for the large futures), and of 1 Swiss franc per point in the SMI. A Micro-EURO STOXX 50 future contract, therefore, would have had a nominal value of 3,978 euros based on the Apr. 9 index closing price, compared with 39,780 euros for the large futures.1
DAX futures’ value
In the case of the DAX, the nominal value of the large contract would have been 380,850 euros, compared with 15,234 euros for the new micro futures.2 The large contracts’ value has grown from 62,275 euros in March 2003 following gains in the underlying, which is a total-return index. While investors do not pay the entire value of the contract, a proportional margin requirement, or initial capital participation, is required.
Fractioning the products’ value also means money managers can use the futures to hedge or build equity exposures in a more accurate way, avoiding ‘over/under-hedging’ or ‘over/under-allocating’ a portfolio.
Volume shifting to cheaper contracts
There is a precedent that shows interest is turning to lower-value contracts. The Mini-DAX® futures were launched in October 2015 and their market share has grown every year since. A total of 1.25 million contracts were negotiated in March, nearly three quarters of the turnover in the more established large DAX contracts. The Mini-DAX futures have a value of 5 euros per index point.
In markets in Asia and in the US, investors have largely switched to smaller contracts too.
Thanks to Eurex’s extended trading hours, the futures offer trading and hedging opportunities for participants in different time zones. The contract specifications of the new contracts are otherwise in line with the existing futures.
Secure and liquid market
On-exchange equity index futures have for years made up a deep and liquid market that serves as a secure and transparent trading venue for investors. The new products will likely add to turnover volumes, expanding the benefit of futures trading to a wider public.
1 The quoted price is for illustrative purposes only and does not reflect the actual price of any of the various futures’ maturities.
2 This is a theoretical price based on the underlying’s closing price on Apr. 9, 2021.