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It may be a case of history repeating itself or it may be the opening of a
new market segment. When the CBOT came out with the Major Market Index in
the 1980s it had a multiplier of $100. The institutions said they would
trade something so small, so the CBOT came out with a $250 multiplier. The
$100 issue was the MX or missile, the $250 was the Maxi. The missile died,
and so did the Maxi after the stock market crash of 1987.
Today we have a different environment. It is much more efficient for
brokerage firms to let clients trade such smaller contracts from an online
interface. The client has better access and a leveler playing field with
first in first out basis.
One of the main reasons the Midam had any volume over the years is that it
would offer a lower cost learning curve for new traders. It also offered
option hedgers a more accurate tool to hedge their deltas.
The CME is coming out with a papertrading online interface, for new traders
to try there hand at trading the eminis. Wouldn't it make better sense to
trade for real, but with a lower cost for the contract value? I think that
is the thinking of the CBOT.
Also, I think this contract will be very popular with brokers trading their
own accounts. It is a way to stay in synch with the market, but without
having a lot of exposure. The bigger the dollar amounts you have on the
line, the more you pay attention to your own account rather than you clients.
And that is not a good career move. So this is a contact that is small
enough for new traders, small enough for many brokers to trade without being
overly concerned with their position and a fit between papertrading and
trading the eminis. Only time will tell whether it will work. I expect it
will.
Regards,
John J. Lothian
Disclosure: Futures trading involves financial risk, lots of it! John J.
Lothian is the President of the Electronic Trading Division of The Price
Futures Group, Inc., an Introducing Broker.
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