CME Group has investment ideas for the masses


How confident are you about the direction of the markets?

Are you good enough to guess when a big company will surprise investors with boffo profits and send stock indexes higher? Or are you prescient of Federal Reserve decisions or new inflation data that can send stocks tumbling?

Well, get up, buddy. The Chicago futures markets give you a chance to profit from the prophecy.

CME Group, the Chicago-based owner of global futures markets, introduced a product line last week that opens a new phase of its business. They’re called event-driven contracts and are touted as a way to get more everyday investors involved in the day-to-day action.

Some will read this and say it means getting more lambs to slaughter. But this seems to be a danger for our time; the same goes for sports betting, now so ubiquitous that professional leagues are all promoting it.

The futures and options markets are fundamental industries in Chicago, but they have always been a mystery to most people. Selling something you don’t actually own is a difficult concept, and the complexity and terminology of so many contracts puts people off. Many efforts have been made to make futures and options more mainstream with mixed success.

With event contracts, CME Group tries to simplify things. They are based on widely available data points such as the Standard & Poor’s 500, the Dow Jones Industrial Average, or the price of gold or oil. And these are yes or no propositions.

Do you expect the index or price to close above a specified level at the end of the day? Each contract is worth $20. If you’re right, you get $20. If you are wrong, your loss is what you paid for the contract. This payout can range from 25 cents to $19.75, depending on whether your bet seems overdone or like a safe bet.

CME Group is working with a handful of futures brokers to spread the word. One of them is NinjaTrader Group, with offices at 222 N. LaSalle St. CEO Martin Franchi is enthusiastic about the contracts, so much so that his allied company, Tradovate, has launched an app for them.

“Retail investors are finding their way to futures,” he said. “CME and NinjaTrader’s goal was to create simple, secure and accessible products.”

Franchi said he’s not concerned that the contracts will result in unsuspecting newcomers getting ripped off by the futures. He is confident in product design: possible profits and losses are known before a person presses the trade button.

For this type of trading, clients cannot risk more than what is in their accounts. Commissions and clearing fees may apply, although Franchi said his firm only charges a clearing fee of 9 cents per contract transmitted to the exchange.

Transaction fees are what CME Group gets from this business. For Franchi’s business, he said the value lies in expanding its base among active traders.

Franchi said the pros started using event contracts as soon as they became available a week ago. Then new customers became more active, he said. “Futures will be the next asset class to go mainstream,” he said.

Laurie Bischel, spokesperson for CME Group, said he thought the contracts would appeal to people who haven’t typically traded in the futures markets.

“We saw strong engagement from the retail public and our brokerage partners early on, and we look forward to providing market users with innovative, lower-cost ways to access new markets,” a- she declared.

Other event contracts relate to natural gas, silver, copper and the Euro-US dollar exchange rate.

The CME Group calls them event contracts, but they have also been called binary options – referring to the yes or no choice. But that name has fallen out of favor, probably because law enforcement has been investigating numerous scams involving unlicensed dealers offering binary options. Market regulators in Europe have banned this form of trading. In the United States, binary options are only legal through licensed brokers and exchanges.

Elsewhere in town, Cboe Global Markets, which specializes in options on stocks and stock indices, tried binary options in 2008 on the S&P 500 and its popular VIX measure of market volatility. Cboe dropped them a few years later after trading declined.

CME, which includes the former Chicago Mercantile Exchange and the Chicago Board of Trade, hosts another form of “event driven” trading. It lists contracts related to weather trends. If you’re wondering if it’s possible to trade another “event” on the stock market, like the US presidential election, know that US regulators ruled it out in 2012. For that, you need the bookmakers.

When it comes to futures, are you bullish or bearish? “Pick a side,” CME says in its marketing material, and it presents itself as a challenge. Just bet – er, invest – responsibly.


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