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Big futures on the cheap
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September 4, 1997: 9:01 p.m. ET
Relatively cheap, that is; new E-Mini S&P futures will cost about $48,000
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NEW YORK (CNNfn) - Joining the rush among financial institutions to find new ways into your wallet, the Chicago Mercantile Exchange will offer derivatives trading priced for the individual starting Sept. 9.
The new products -- E-Mini S&P 500 futures or E-Mini options contracts -- bring traders through the Internet to the excitement of "open outcry" pit trading of the Mercantile Exchange.
Priced at $50 times the S&P index, E-Mini S&P futures contracts will cost around $48,000 based on current market values. Prices vary for options contracts -- which give you the chance to buy the futures contracts.
So for about the price of one share of Berkshire Hathaway -- or a 1998 Porsche Boxster -- you can get a piece of what now costs regular traders 10 times as much, or $500 times the S&P index.
The new product is targeted at sophisticated investors who want to manage their own portfolios as well as at Internet-savvy investors.
"We've analyzed the landscape, and there's a whole new breed of economically literate and technologically adept and literate financial investor out there -- the individual investor," exchange chairman Jack Sandner said on "Moneyline with Lou Dobbs."
The full price of the contract may seem steep, but one exchange official said the amount of equity exposure is reasonable when compared to the serious investor's full portfolio.
"The portfolio [exposure] of $50,000 is quite low, actually," exchange Chairman Emeritus Leo Melamed said. "Many investors … after these many years of profits have much more in their portfolios.
"$50,000 is ... the number I think the retail investor can use," Melamed said.
One financial analyst applauded the savvy marketing behind the new product, but cautioned that it is not for novice investors or for businesses.
"Unless you're a sophisticated investor, you shouldn't be involved in derivatives," said Charles Hamowy, a certified financial planner with American Express Financial Advisors. "It's no more risky than option calls and puts," but investors must understand the risks, he said. "For people who can afford to lose $20,000 in a given month … then it might be fine," he said.
Hamowy praised the new product as a smart move for the exchange to tap into a lower-priced arena.
He said E-Minis are similar to "Baby Berkshires," which offer a fraction of a share of Berkshire Hathaway stock. (Baby Berkshires (BRK.B) closed Thursday down 2 at 1,455; The real thing (BRK.A) dropped 200 to 43,600.)
But Hamowy said he would not recommend E-Minis to his 250 individual clients, who hold portfolios valued between $500,000 and $5 million.
"It's not a way to get a diversified portfolio," he said. "People would be jumping on a bandwagon that has already left the stable," referring to his view that the S&P 500 is currently overvalued.
Investors who want to take the plunge can contact their brokers to set up a special kind of account to buy futures or options, Chicago Mercantile Exchange spokeswoman Ellen Resnick said. Brokerage houses can coordinate with one of the 80 firms that have direct access to the trading floor.
Investors most likely will have to hold a minimum level of funds in their brokerage accounts to get permission to buy E-Minis, Resnick said. You'll also have to sign disclosure forms indicating you have a significant understanding of futures, she said.
Once the trading starts, the exchange's website will provide free, live E-Mini price quotes.
Still afraid to take your chances?
The exchange will offer an online service where you can practice trading E-Mini S&P 500 contracts. Everybody who signs up gets $100,000 in simulated funds to trade. 
--Will Morton
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