The Chicago Mercantile Exchange (CME) launched event futures contracts in September of 2022. Event futures contracts allow speculators to to trade their opinion on where key futures markets will close, using simple yes-or-no questions.
The release comes at a time when individuals are increasingly looking to manage their investments themselves, with self-directed brokerage accounts. Micro equity index futures launched in 2019 allowed individuals to trade futures with lower risk and were a great success. Event futures contracts are less complex and have the advantage that potential profit and loss are clear when entering a trade.
Participants know their maximum profit or loss when entering a trade. Each event contract is sized at $20 per contract. It costs anywhere between $0.25 and $19.75 to initiate the trade.
For example, an individual could place a trade based on the question, ‘Will silver close above $19.50 today?’ In the example above you can choose ‘yes’ for $15.75. If you are right and the price closes above $19.50 you get $20 back, meaning a profit of $4.25 after subtracting the $15.75 you paid to enter the trade.
If you choose ‘no’ – the less likely event that silver does not close above $19.50 today – you would pay $5.25 to enter the trade. If you are right and silver does not close above $19.50, then your profit would be greater. You would get $20 back, meaning a profit of $14.75 after taking into account the $5.25 paid to enter the trade.
If you were wrong in either scenario, you would simply lose the cost of entering the trade ($15.75 or $5.25).
Benefits of Event Based Futures
- Low barrier to entry: The cost to enter a trade is set low, with event contracts priced in U.S. dollars and cents between $0.25 to $19.75 per trade. You can buy one contract or multiple contracts at once.
- Predefined profit and loss conditions: The price you pay per contract is the most you can lose per trade and will be clearly displayed upfront. The most you can make is $20 per contract.
Event Futures Contracts vs. Standard Futures Contracts
A key difference is that when you pay the fee to enter the trade, that’s the most you can lose. Risk management is more complex when trading a standard or a micro-futures contract.
There are multiple price levels available so you can customize your risk versus reward amounts. The maximum order quantity is 250 contracts. It is possible to exit your position at any time prior to settlement.
Available Event Contracts
Event Futures contacts include gold, silver, copper, crude oil, natural gas, E-mini S&P 500, E-mini Nasdaq-100, E-mini Dow Jones Industrial Average, E-mini Russell 2000 and euro-U.S. dollar foreign exchange futures.
|WTI Crude Oil
Each contract opens at 6PM Eastern Time each night, starting Sunday night and ending Friday afternoon. There is no trading over the weekends. The last trading session of the week opens at 6PM eastern on Thursday and closes on Friday afternoon.
Settlement times are different based on which product you are trading. All four stock indices will settle at 4PM Eastern – that means that the settlement price at 4PM Eastern of the underlying futures contract will determine if the price is above or below the price chosen with an event based futures contract.
The two energy products close at 2:30 PM Eastern and there is a different settlement time for each of the metals.
The Bottom Line
Event based futures are short-term, limited-risk contracts that provide a simple way to participate in popular futures markets.
Learn more about trading Event Based Futures with our partner Interactive Brokers at IBKR EventTrader