Did you know that Commodities have Mini-sized Contracts too?

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1 MAY 2011 TRADING the MIGHTY MINIs Did you know that Commodities have Mini-sized Contracts too? 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 ) offered 1,000 bushel grain futures against the Chicago Board of Trade s 5,000 bushel contracts. Back when trading was all open-outcry, most attempts at mini versions of the regular contracts faired poorly there was just too little volume and open interest. But electronic trading changed all of that and today the electronic (or E ) mini futures have exploded with record-breaking volume and open interest. Unprecedented liquidity coupled with near 24-hour trading hours and easy self-directed order entry (via front-end platforms) have brought a whole new wave of traders into the futures marketplace. (1) Today, U.S. futures exchanges offer more than 20 different mini contracts. Daily volume ranges from the millions (E-mini S&P 500) to just single digits (mini-gasoline and mini-copper). Volume in the mini-silver contract grew by 64% in 2010 (versus 2009 contract volume). In fact, four of the s E-mini stock index contracts far and away surpass the trading volume in the regular sized stock index futures. [see table 1] Mini contracts offer these trading benefits for both Day-Traders and Position-Traders 100% electronic trading means efficient and swift order entry and instantaneous execution reporting. Electronic markets offer full transparency the ability to see the range of bids and offers. Trading is open around the clock, around the world. Greater flexibility in placing and holding trades based on a forecasted price movement rather than a specific dollar-based risk of holding a position. o See explanation and discussion of commensurate risk, on page 2 Lower margins (2) Note: Trading mini-contracts is still speculative in nature and carries the same substantial risk of loss that comes from trading regular-sized futures contracts. Trading mini-futures contracts is not suitable for everyone. Trading in futures contracts with lower volumes and open interest carries additional risks, including slippage and possibly wide bid/offer spreads. This may make it difficult to initiate or liquidate a position close to the last traded price.

2 Mini contracts can also help the longer-term trader build and hold a position. One of the great attractions of futures trading is the high leverage. But leverage is a doubleedged sword which sometimes prevents traders with limited risk capital (or a personally riskadverse trading profile) from building and holding longer-term positions. Mini-sized contracts have the same leverage and therefore the same risk as full-sized contracts but with commensurately smaller margin requirements and smaller contract size. The small contract size means the absolute dollar risk per trading unit (per ounce, per bushel, per barrel, etc) is therefore lower on a per contract basis. Note: All futures trading, including mini-sized contracts, is speculative in nature and involves substantial risk of loss. A high degree of leverage may lead to substantial losses of client funds. The National Futures Association defines leverage as the ability to control large dollar amounts of a commodity with a comparatively small amount of capital. Illustration # 1 Imagine a trader chooses to allocate $7,000 of his or her risk capital to maintain a position in Gold futures. With one regular-size contract requiring almost $6,800 in initial margin requirements our hypothetical trader can be long or short just one contract, or sit on the sidelines. There is no room for flexibility. But with mini-gold your margin requirements as well as your risk/reward is just one-third of the regular contract. The trader can begin with one contract and if market condition warrant, build to a position of three mini-contracts, and hold the pre-set allocation limit. Conversely, as the market moves with or against the position, the trader can reduce the 3-contract position, one contract at a time thereby remaining in the market though with ever-decreasing exposure to the number of ounces the position represents. Scaling in, building a position, reducing a position these are all important considerations when comparing trading mini-sized futures contracts to the larger-sized contracts. Note: Trading in futures, including mini-sized futures, is speculative in nature and involves substantial risk of loss. Illustration # 2 Imagine a trader last January (2011) forecasting a potential 10% rally in the price of Gold. Such a rally would represent a price movement of (approximately) $ an ounce. But at the same time, the trader decides to risk $50.00 an ounce. That is, if the market declines by $50.00 an ounce the trader would liquidate and take the loss. The decision to be long Gold is, at this stage, a price forecast made irregardless of the size of the underlying futures contract. Simply put, this hypothetical trading plan calls for risking $50/oz. against the forecasted expectation of a potential price increase of $135/oz. And this is our point: the trader is now focusing on the Dollar-per-Ounce risk/reward from a specific trade forecast. If the trader chose to trade the 100 ounce contract, he faces a change in contract value equal to $1,000 for every $10/ounce move up or down in the price of gold because he now controls 100 ounces. The $50/$135 per ounce risk/reward becomes $5000/$13,500 on a Per-Contract basis.

3 The actual dollars at risk may be too great. But with mini-gold the risk/reward is just one-third of the regular contract. This creates an environment where it is easier to trade with your convictions (in this example, willing to risk $50/oz. against the forecasted expectation of a $135/oz. potential gain. With a contract size of 33.2 ounces, this equates to a $1660 risk./$4,482 reward forecast. Given the daily volatility in gold futures prices, some traders might prefer to trade mini gold contracts, knowing that each $10 per ounce price movement has a $332 valuation versus $1,000 with the full-sized contract. Note: Futures trading, including trading mini-sized contracts, is speculative in nature and involves substantial risk of loss. Trading Mini-Sized Futures in your Zaner Group Account Whether you are a self-directed trader or follow the broker-assisted path, Zaner can readily service your mini-futures trading at competitive commissions and day-trade margins [see footnote #2]. Self-directed traders will be especially interested in our ZanerDayTrader platform, which was developed expressly for trading electronic markets especially the e-mini stock index futures. Open a mock account and demo the Zaner DayTrader platform in real-time environment for 30 days, without obligation.. Register for a simulated trading account at CONTACTING THE ZANER GROUP Zaner Group is one America s oldest family-owned futures brokerage firms. You can find us on the internet at We invite you to join the thousands of other Zaner clients who have enjoyed our products, services and dedicated client support. For information on trading or opening an account, call toll-free at ; by at: sales@zaner.com; but we suggest you learn more about the requirements for opening a futures account by downloading our report at Futures, options and forex trading, including mini-futures, involves substantial risk of loss and is not suitable for all investors. Trading in mini-sized futures contracts carries the same degree of risk of loss as regular-sized contracts. You should carefully consider

4 whether trading is suitable for you in light of your circumstances, knowledge and financial resources FOOTNOTES 1. Globex and E-mini are registered trademarks of. Mini contracts traded electronically but listed at other futures exchanges do not use the E-mini prefix. 2. Qualified clients using the Zaner DayTrader platform may be entitled to day-trade margin requirements lower than the overnight Initial requirements. Positions held over-night may result in a margin call based on a futures exchange s initial margin requirements. 3. All times shown in the Appendix are Central (Chicago) Time Tables 1 and 2 appear in the Appendix at the end of the Report. We have selected ten of the more popular mini contracts (and one micro contract), including both commodities and stock indices, to present their contract specifications and relevant information in greater detail: (3) Appendix Table 1: An Overview of Mini-Sized Futures Contracts Contract Subjective Opinion on the Mini Contracts Volume and Liquidity Mini-contract Volume and Open Interest GREATER than the Regular-sized Contract S&P 500 High Yes NASDAQ-100 High Yes Russell 2000 High No corresponding regularsized contract S&P Midcap 400 High Yes Dow Jones Industrial Average High Yes Crude Oil Moderate + No Gold Moderate No Euro FX Moderate No Natural Gas Moderate No Silver Moderate No Soybeans Low No Japanese Yen Low No Gasoline Low No Heating Oil Low No Wheat Low No Corn Low No Copper Low No

5 We have selected ten actively traded mini contracts, including both commodities, currencies and stock indices, to present their contract specifications and relevant information in greater detail: (3) COMMODITIES Mini- Gold NYSE Liffe US Electronic 6:16 pm 4:00 pm the following day; Sunday through Friday Physical 33.2 troy ounces (1/3 rd the size of the Regular) Tick Size $.10/oz. ($3.32) Margin (as of 4/15/11) $2,167 YG E-Micro Gold COMEX Electronic Sunday-Friday 5:00 pm 4:15 pm with a 45 minute break each day beginning at 4:15 pm Physical 10 troy ounces (1/10 rd the size of the Regular) Tick Size $.10/oz. ($1.00) Margin (as of 4/15//11) $675 MGC Mini-Silver Tick Size Margin (as of 4/15/11) $2,349 YI NYSE Liffe US Electronic 6:16 pm 4:00 pm the following day; Sunday through Friday Physical 1,000 ounces 1/10 th of 1 cent ($.0001) = $1 per contract E-mini Crude Oil NYMEX GLOBEX, 5:00 PM 4:15 PM, CT Physical Delivery or Cash-Settled 500 barrels (1/2 the size of the Regular) Tick Size $.025/barrel ($12.50) Margin (as of 4/15/11) $3,375 QM

6 E-mini Natural Gas NYMEX GLOBEX, 5:00 PM 4:15 PM, CT Physical Delivery or Cash-Settled 2,500 million BTUs (1/4 the size of the Regular) Tick Size $.005 ($12.50) Margin (as of 4/15/11) $1,103 QG STOCK INDICES AND CURRENCIES E-mini S&P 500 GLOBEX; 3:30 pm-3:15 pm, with a Shutdown period from 4:30 pm 5:00 pm (CT). Sunday opening time is 5:00 pm $50 multiplier (1/5 th the size of the Regular) Tick Size 0.25 (25 basis points), = $12.50 Margin (as of 4/15/11) $5,625 ES E-mini NASDAQ-100 GLOBEX; 3:30 pm-3:15 pm, with a Shutdown period from 4:30 pm 5:00 pm (CT). Sunday opening time is 5:00 pm Settle method $20 multiplier (1/5 th the size of the Regular) Tick Size 0.25 (25 basis points), = $5.00 Margin (as of 4/15/11) $3,500 NQ mini Russell 2000 ICE Futures US ICE electronic: 7:00 pm-5:00 pm (next day). On Sundays, trading begins at 5:00 pm $100 multiplier Tick Size 0.10 (10 basis points), = $10.00 Margin (as of 4/15/11) $2,900 TF

7 E-mini S&P Midcap 400 GLOBEX; 3:30 pm-3:15 pm, with a Shutdown period from 4:30 pm 5:00 pm (CT). Sunday opening time is 5:00 pm $100 multiplier (1/5 th the size of the Regular) Tick Size 0.10 (10 basis points), = $10.00 Margin (as of 4/15/11) $7,500 ME E-Mini Dow Globex 3:30 pm 3:15 pm $5 multiplier (1/2 the size of the Regular) Tick Size 1 index point (= $5.00) Margin (as of 4/15/11) $6,500 YM E-mini EuroFX GLOBEX 5:00 pm-4:00 pm (CT) Physical Delivery 62,500 euros (1/2 the size of the Regular) Tick Size $.0001 ($6.25) Margin (as of 4/15/11) $2,025 E7 Futures, options and forex trading, including mini-futures, involves substantial risk of loss and is not suitable for all investors. Trading in mini-sized futures contracts carries the same degree of risk of loss as regular-sized contracts. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources.