Recently, CME Group’s micro futures contract product portfolio has been expanded again, and West Texas Intermediate crude oil micro futures have been officially launched. According to a reporter from Futures Daily, the contract size of micro WTI crude oil futures is 1/10 of the benchmark WTI crude oil futures contract and is settled in cash. With low margin requirements and higher flexibility, the market saw active participation on the first day of listing of the futures. CME Group data shows that during the Asian trading session on July 12, more than 500 lots of this contract were traded. As for the overall operation situation on the first day, from the spot month contract to the December contract, 17,433 lots of this variety were traded throughout the day, and the open interest was 663 lots.
The active market has long been expected
For micro WTI crude oil Li Wanying, a senior energy and chemical analyst at Donghai, told reporters about the enthusiastic response on the first day of futures listing that the market had expected this. WTI crude oil futures have always been the crude oil product of choice for global traders, and micro WTI crude oil futures have the same strong price discovery capabilities as WTI crude oil futures. At the same time, the contract size is only 1/10 of WTI crude oil futures, allowing for lower margin requirements. The transaction threshold has been lowered to a certain extent.
Jing Chuan, deputy general manager and chief economist of Zhongda Futures, said that micro WTI crude oil futures, like many micro futures contracts launched by CME Group in the past, are not only suitable for small capital operations requirements, it has no impact on transactions with large funds. In addition, micro contracts are more flexible, allowing industries to rationally arrange risk management according to their production conditions. In such cases, after a micro contract becomes available, the newly opened portion of the market will typically be on the new contract. It is precisely because of this that new contracts tend to perform well on their first day of trading.
It is understood that since the listing of various types of standard futures, as the price/point of the underlying asset increases, the nominal value of the contract has gradually increased, which has not only improved retail investors and small and medium-sized industrial customers. The transaction threshold also facilitates institutional clients to flexibly implement trading strategies and accurately manage risks. On the one hand, micro futures have a small contract size and occupy less funds, making it convenient for retail investors and small and medium-sized industrial customers to enter; on the other hand, their minimum price changes are suitable for retail investors and small and medium-sized industrial customers with weak risk tolerance, and are also beneficial to fund management institutions. and other professional institutional investors to accurately manage portfolio risk exposures.
In addition, Jingchuan believes that the listing of micro-WTI crude oil futures will also enrich the exchange’s product tool series, enhance market competitiveness, and also improve the quality of market operations. As an innovative derivatives instrument, micro futures/options can help exchanges build a diversified product instrument sequence to meet the needs of different investors, increase the number of market participants, and help enhance the overall liquidity of the variety, thereby increasing the price impact strength and exchange competitiveness.
Why did CME launch micro WTI crude oil futures at this time?
Li Wanying believes that the launch of micro WTI futures contracts by CME Group at this time has a certain relationship with market changes. “As we all know, the oil price plummeted last year due to the impact of the COVID-19 epidemic, which once caused market panic. Since this year, although the epidemic has been gradually controlled and oil-producing countries have actively and passively reduced production, international oil prices have returned to pre-epidemic levels, but The market’s attention to crude oil futures is still at a high level.”
Zhong Meiyan, director of energy and chemical industry of Everbright Futures, said that since the epidemic last year, the rising oil prices have made investors eager to try, and micro WTI The listing of contracts provides a beneficial supplement to the market.
It is understood that since 2019, affected by factors such as low commissions from online brokers, the rapid development of social networks, and home isolation due to the epidemic, a large number of retail investors in the United States have entered U.S. spot stocks and derivatives. , ETF market. In response to the trading needs of retail investors, overseas exchanges have launched a batch of micro contracts based on assets such as stock indexes and Bitcoin in recent years, setting off a new wave of “mini” contracts.
“This trend is mainly concentrated in financial products and is relatively rare in the commodity market. The launch of micro-WTI crude oil futures by CME Group at this time has a certain connection with the flooding of global liquidity this year.” Jingchuan said that under this background, the market’s demand for asset preservation and hedging inflation risks has increased, and companies have different demands for derivative instruments. Considering that compared with the original standard contracts, mini or micro contracts have smaller contract sizes and occupy less funds, and can better meet the differentiated needs of different market entities.
Can domestic derivatives keep up with the “mini” wave?
Zhong Meiyan believes that considering that the current trading volume and open interest of SC crude oil futures are still far behind WTI crude oil futures, the entire market foundation is not solid enough, and domestic crude oil futures The market is still in the early stages of development. Based on factors such as policy protection and liquidity cultivation, the current market is not suitable for launching contracts with activity as the first goal.
In this regard, Yang An, head of energy and chemical R&D of Haitong Futures, agreed. In his view, in order to consolidate their industry positions in recent years, exchanges need to design and launch more flexible, convenient and demand-oriented products from the perspective of serving investors in order to expand their influence. However, as my country’s first international product, the listing of SC crude oil futures shoulders the important task of serving the real economy and promoting the internationalization of my country’s futures market. From the perspective of protecting the interests of investorsStarting from a certain perspective, it is a more pragmatic choice to let relatively professional investors participate first. Therefore, its account opening threshold is relatively high, and large contracts also temporarily restrict the participation of investors with limited funds and risk tolerance.
However, after the crude oil crash last year, many funds used banks and other channels to buy the bottom of the crude oil market. It can be seen that the majority of investors in our country are very eager to participate in crude oil futures trading. Therefore, Yang An believes that after the SC operation further matures and its international influence gradually expands, the timely launch of small crude oil futures contracts by the exchange should also be an option.
Jingchuan told reporters that compared with similar overseas varieties, my country’s commodity futures standard contracts are already relatively small.
If relevant institutions or departments prepare to launch micro or mini contracts in the future, Li Wanying believes that micro or mini varieties must not only meet the requirements of long development time, large contract scale and high margin usage , good liquidity, high enthusiasm for market participation and other conditions, the market also needs to introduce corresponding regulatory policies.
In Jingchuan’s view, when the nominal value of the primary contract is too large, the relevant departments may also consider researching the launch of micro-futures or converting existing contracts into existing ones after consulting the needs of industrial customers. The size of a standard futures contract should be appropriately reduced. After all, adding micro futures when the speculative nature of the overall market is more controllable will help ensure that my country’s futures market serves the purpose of serving the development of the real economy.
Jingchuan suggested that the size design of micro/mini futures contracts should fully consider the spot industry structure. Taking C-type coffee as an example, the most obvious feature of the global coffee industry structure is smallholder cultivation, and the main production areas and processing areas are concentrated in developing countries such as Central America, South America, and Africa. Market participants in these areas are less involved in futures trading. , on the one hand, they lack the awareness of using futures for risk management, and their financial resources, education level, trading ability, and risk tolerance are insufficient; on the other hand, the financial environment of the country where they are located is relatively backward, and even lacks basic trading facilities, so that their participation Channels for futures trading are limited. Therefore, the trading of coffee mini futures launched for such small and medium-sized industrial customers is not ideal. </p
