Trading Mini Gold and Silver Futures
Mini-sized futures contracts aren’t new. In fact they date back to the 1880’s when the Open Board of Trade (later re-named the MidAmerica Commodity Exchange) offered 1,000 bushel grain futures against the Chicago Board of Trade’s 5,000 bushel contracts. Both full-sized gold and silver futures trade at the COMEX and NYSE Liffe U.S. futures exchanges and while the COMEX may be the dominant metals exchange in the United States, the volume leader contracts for mini-precious metals futures trade at the NYSE Liffe. (https://www.nyse.com). The contracts trade electronically on the LIFFE CONNECT platform.
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Mini Gold and Silver Trading Benefits for Traders
One of the attractions of futures trading is the high leverage. The National Futures Association defines Leverage as: “The ability to control large dollar amounts of a commodity with a comparatively small amount of capital.” But leverage is a double-edged sword which creates risk commensurate to the reward. The reality of leverage sometimes prevents traders with limited risk capital (or a personally risk-adverse trading profile) from building and holding long-term positions. Mini contracts can help such traders build and hold positions.
The table below will help illustrate the benefits that mini-sized futures contracts hold for smaller traders. Let’s assume a trader forecasting a $3.00 per ounce change in the price of silver (up or down) might also decide that the position requires risking $1.00 per ounce. As the table illustrates, this particular risk/reward strategy equates to $5,000 risk/$15,000 profit objective with a full-sized silver contract and requires that the trader maintain $8,100 in his (or her) brokerage account to meet the Initial Margin requirement. This trader could still implement an identical strategy based on a forecasted $3.00 per ounce price movement with a $1.00 per ounce protective stop order but instead place the trade in the mini-silver contract. The 3/1 risk/reward ratio can be maintained but now the trader needs just $1,620 of Initial Margin Requirement (or one-fifth the amount of a full-sized contract) to establish and hold the position. The 3/1 risk/reward now equates to $1,000 risk/$3,000 profit objective. The point being made is that the mini-silver allows the trader to trade for the same dollar-per-ounce price movement. The trader gives up a greater contract value profit opportunity in return for a lower contract value risk of loss.
Furthermore the mini-sized trader can build a position with one to five contracts ultimately using the same Initial Margin Requirement it would take to hold (long or short) just one full-sized contract. This serves as another advantage for the position trader with a longer term outlook.
Of course in real trading there is no guarantee that you can limit the actual loss to any specific dollar amount.
|
Full sized Silver Futures |
Mini NYSE Liffe Silver |
|
|
Contract size |
5,000 ounces |
1,000 ounces |
|
Initial Margin Requirement (as of 8/5/09) |
$8,100 |
$1,620 |
|
Profit/Loss Dollar value of a 1 cent change in the price of Silver futures |
+/- $50.00 per contract |
+/- $10 per contract |
|
Profit/Loss Dollar value of a $1.00 change in the price of Silver futures |
+/- $5,000 |
+/- $1,000 |
One special word of caution: Too many traders today, focusing exclusively on the E-mini stock index futures, have come to equate electronic futures platform trading with cash-settled futures contracts. Both the full-sized and mini-gold and silver contracts are physical delivery futures. This means that an open Long position, held as of the First Notice Day, could receive a delivery notice. The effect being the long futures position is replaced by physical ownership of an actual cash position which must be paid for in full. Both long and short futures positions, kept open past the closing bell on the Last Trading Day, are closed out via physical delivery of the metals.
To help the readers better understand the nuances of trading these contracts, I’ve prepared a Fact Sheet which illustrates the key contract specifications.
NYSE Liffe U.S. Mini Gold and Mini Silver Futures Contract
|
Mini Gold |
Mini Silver |
|
|
Contract Size |
33.2 fine troy ounces |
1,000 troy ounces |
|
Relation of contract size to standard sized |
1/3rd |
1/5th |
|
Price Quote |
Dollars and cents per ounce |
Dollar and cents per ounce |
|
Tick Size |
INITIAL_CONTENT.10 per ounce; |
1/10th of one cent (INITIAL_CONTENT.001); |
|
Contract Months |
The current month, for delivery purposes, plus the next eleven calendar months |
The current month, for delivery purposes, plus the next eleven calendar months |
|
Delivery |
Physical |
Physical |
|
Last trading session without delivery risk |
Long positions must be offset prior to the close of the trading session ending on the second business day prior to the first business day of the contract month. |
Long positions must be offset prior to the close of the trading session ending on the second business day prior to the first business day of the contract month. |
|
Initial Margin Requirement |
$1,800 |
$1,620 |
|
Trading Hours |
7:16 pm to 5:00 pm the following day; Sunday through Friday, U.S. EDT |
7:16 pm to 5:00 pm the following day; Sunday through Friday, U.S. EDT |
|
Method of Trading |
Electronic |
Electronic |
|
Quote Symbols |
Most order-entry platforms: YG |
Most order-entry platforms: YI |
Larry Schneider is director of business development for the Zaner Group, a Chicago-based independent introducing brokerage firm, and a frequent contributor to the futures pages of TradingMarkets. Zaner provides futures and forex brokerage services to self-directed traders, broker-assisted accounts as well as traditional full-service account management. He will be teaching the online Basics of Futures Trading course for Northwestern University’s School of Continuing Studies.