Investors can also have additional gains by increasing
exposure in index futures if the direction is favourable. This can
also give the investor a board view of the market instead of
gambling on individual stocks and in doing so will eliminate
specific risk.
The value of the S&P contract can be calculated by
multiplying the price by $500. For example; if the contract is
trading at 1051.25 then the value of the contract is $525,625. Where
the minimum price fluctuation is 0.1 (1 tick) and 10 ticks = 1 point
or $250.
In the past index futures contracts were only traded
in open outcry pits at the exchange and traded by hedge fund managers and
investment banks. Now retail traders can speculate electronically
(online) and on a more affordable scale through the same exchanges.
The Electronic Mini Contract can allow a trader to leverage and
become exposed to similar price movements as a standard contract (as
explained above).
Speculation refers to traders who attempt to profit
from the price fluctuations in the market during the contract period
in that they have no intention to take delivery of the asset. A
speculator has the ability to buy and sell futures contacts through
an exchange traded market, before the maturity date of the contract.
Speculators are you, me, investment banks and private firms. You and
I have no real influence over the market - that is left up to the
larger firms that can through around a lot more money than the
little guy. However we can take advantage of this and ride the wave.
Unlike
share trading where a company can inject liquidity into their stock,
a futures contract can only be bought if there is a seller and sold
if there is a buyer. That is why a very liquid
market is important such as the S&P 500 index with an average of
approximately 2.5 million contracts traded each day and USD$40
Billion is transacted. The S&P also represents 90% of the all
stocks traded in the US.
Index trading has certain advantages over commodities,
for instance cost of transaction and volatility, and should be your
first point to trade futures. There are many different indexes
around the world however not all are appropriate to trade. For
example the Emini-ASX200 has light volume and is not yet popular.
Worldwide, the most commonly traded index is the NYSE E-mini S&P
500. Some of the commonly traded indexes that do offer the E-mini
contract include but are not limited
to:
|
Index |
Symbol |
City /Country |
Market Hours |
Exchange |
|
Emini S&P
500 |
ES |
Chicago
US |
8:30am -3:15pm |
CME / Globex |
|
Emini NASDAQ 100 |
NQ |
Chicago
US |
8:30am -3:15pm |
CME / Globex |
|
Emini Dow Jones |
YM |
Chicago
US |
8:30am -3:15pm |
CME / Globex |
|
Emini Euro Stoxx
50 |
FESX |
Frankfurt Germany |
9:00am -4:15pm |
EUREX |
|
Emini Russell
2000 |
TF |
New
York
US |
9:30am -4:15pm |
NYFE |
Like shares, each contract has a symbol supplied by
the exchange; this allows the individual instrument to be
identified. As mentioned earlier the contracts all have a 3 month
expiration date. The symbol will also carry a suffix indicating
which period futures are being traded. i.e. ESH9 means E-mini
S&P 500 March 09. Your broker will help you in how to properly
identify the correct contract.
F
January
G
February
H
- March
J
April
K
May
M
- June
N
July
Q
August
U
- September
V
October X
November
Z
- December
Some E-mini contracts can be traded 24 hours a day
however the best time to trade is during market hours. Therefore the
local time at the exchange is the starting time for trading the
contract.. ie CME is in Chicago,
US therefore the
market hours are from 8:30am to 3:15pm and the EUREX exchange is in
Frankfurt,
Germany and starts at
9:00am to 4:15pm.
Price and Return
S&P 500
The E-mini S&P500 contract trades in increments of
0.25 (1 tick) or 4 ticks = 1 point. This means 1 point on the
S&P 500 = $50 or $12.50 per tick per contract. Now you can see
that if you trade 10 contracts and win 2 points you receive $1000
(minus commissions). On the down side, you can as easily loose that
$1000. This is why using proper risk management and trading
strategies are important.
Other Indexes
The S&P 500 futures index is one of the most
widely traded futures markets however there are many other indexes
that can be traded. Different indexes will give a different return
for each tick. For
instance the S&P 500 gives $12.50 per tic where 4 tics = 1
point. The table below lists some of the indexes and shows the
number of tics per point and the return per
tic.
|
Index |
Tics per point |
Return per
tic |
|
E-mini Euro Stoxx
50 |
10 |
10 |
|
E-mini S&P
500 |
4 |
US$12.50 |
|
E-mini Russell
2000 |
10 |
US$10 |
|
E-mini Dow Jones Industrial
Average |
4 |
US$5 |
|
E-mini NASDAQ |
4 |
US$5 |
