Index futures and micro futures

For many day traders the answer to "which product" is an index futures contract. One instrument, the same every day, no PDT rule, no borrowing to short, a single deep order book and the cleanest level behaviour in any market. This lesson covers the four main CME equity index contracts, their micro versions, and the arithmetic that decides which one you can afford.

The contract specs

Margins vary by broker and by volatility. Ranges are rough averages; a quiet summer day is below them and a Fed day above.

Each micro is exactly one-tenth of its full-size contract. Ten MES equal one ES in every respect except commission, where ten micros cost more than one full contract.

The dollar-risk arithmetic

The stop in points is set by the chart. The stop in dollars is set by the contract. A trader who picks the contract before the account size has the order backwards.

Take an 8-point stop on the S&P, which is a normal opening-range stop:

• ES: 8 × $50 = $400 per contract
• MES: 8 × $5 = $40 per contract

Take a 30-point stop on the Nasdaq:

• NQ: 30 × $20 = $600 per contract
• MNQ: 30 × $2 = $60 per contract

At 0.5% risk per trade:

The table's message is blunt: below about $80,000 you should not be trading a single ES with a normal stop, and below about $120,000 not a single NQ. The micros exist precisely so that a $10,000 to $50,000 account can trade index futures at a sane percentage. Use them. The position size calculator does this arithmetic for any stop and account.

Why micros are not "for beginners" only

Some traders treat micros as training wheels and rush to the full contract. Two things argue against that.

First, granularity. A trader with $50,000 trading 6 MES can scale out in thirds (2, 2, 2). The same trader trading "one ES when I can afford it" has no way to take a partial. Micros give you position-management options that one full contract does not.

Second, the cost difference is small. Ten MES round trips at about $1.30 each cost $13; one ES round trip costs about $4. The extra $9 on a $400-risk trade is about 0.02R. That is a cheap price for the ability to size precisely.

The case for the full contract is only real when commissions become a meaningful fraction of the tick, which happens for scalpers taking many trades for one or two ticks. This playbook does not scalp.

Which index

• ES / MES is the most liquid contract in the world and the calmest. Its levels are respected because the entire hedging world watches them. The default choice.
• NQ / MNQ moves more per day in percentage terms, trends harder and is noisier; stops need to be wider and the point value is different. Good for traders who find ES too slow, after they have a sample on ES.
• YM / MYM is thinner and mostly redundant with ES.
• RTY / M2K behaves differently from the large-cap indices and can be useful on rotation days; not a first product.

  Same morning, ES and NQ, in ticks from the open

  ES   |    ___/\
       |   /     \___/\_/\___
       |__/                  \__      ~ 40 ticks
       +------------------------

  NQ   |      _/\
       |     /   \  /\
       |    /     \/  \      /\
       |___/           \____/  \_    ~ 160 ticks
       +------------------------
  Same direction, four times the noise. Stops scale with it.

Rollover and the front month

Index futures expire quarterly (March, June, September, December, on the third Friday). Volume moves to the next contract about a week before expiry, on the second Thursday of the expiry month, eight days before expiry. On that morning, switch your charts and your orders to the new front month. A trader still watching the old contract on rollover Friday is watching a chart with a fraction of the volume. Your platform's continuous contract chart will show a small gap at rollover; levels from before the roll need to be adjusted by the spread between the two contracts.

Key idea: The chart sets the stop in points; the contract sets it in dollars. Choose the contract so that your normal stop is 0.25% to 0.5% of the account, which for most accounts means micros.

Prop firm accounts

Prop firm evaluations for futures use these same contracts and typically allow a fixed number of full-size or micro contracts. Their daily drawdown rules turn the dollar arithmetic above into a hard constraint; Module 7 shows how to align your risk with them, and the prop firm challenge calculator runs the numbers for a specific firm's rules.

Try it: Take your account size. For MES with an 8-point stop and MNQ with a 30-point stop, compute how many contracts 0.5% risk allows. If either answer is zero, that index is not tradeable for you yet at that stop, and the fix is a smaller stop only if the chart supports it, never a bigger percentage.

Recap

• Micros are exactly one-tenth of the full contract; MES is $5 a point and $1.25 a tick, ES $50 and $12.50.
• A normal 8-point S&P stop is $40 on MES and $400 on ES; 0.5% risk needs about $8,000 and $80,000 respectively.
• Micros give scaling granularity and cost only about 0.02R more; they are not training wheels.
• ES/MES is the default; NQ/MNQ is faster and noisier with proportionally wider stops.
• Roll to the new front month on the second Thursday of March, June, September and December.