Posts Tagged ‘indices’
June 7th, 2010 | Author: FTrader
An index futures contract is a contract on a financial index or stock. Every index has a different multiple on which to base the price for the futures contract.
For someone who has a stock portfolio and wants to hedge the risk, it would be time to use the S&P 500 Index. It would result in a portfolio which has locked-in gains at an interest rate which is positively risk-free.
This feature protects stocks against price fluctuations which happen in the broader market. It would also give traders some leverage in handling their stocks.
Full-size futures and E-mini index futures
Full-size futures are regular futures contracts which require very high margins. They could overwhelm an average trader, especially one who’s a beginner. E-mini index futures cover the same contracts but as smaller versions. The smaller contract gets traded for a fraction only of the margin price for the larger contract.
To put it in perspective, you could trade within a margin of $3,000 to $5,000 on a smaller contract instead of on one as large as a regular S&P futures contract worth $20,000 or more.
This lower margin of risk is enticing enough for most traders to engage in index futures, especially when the market they choose to trade in is very volatile. This is one situation when a trader deems it best to hedge surely than to risk speculating.
Hedgers and speculators are said to be such great observers of the futures markets. The best of them are experts on how fellow traders behave and on how the market operates. To participate in the futures market with more confidence and vigor, let’s put you in a position of strength. Let’s find out how to hedge and speculate best!
