Although the futures markets began with agricultural products, and include other solid commodities such as metals and energy, futures contracts can be...
Although the futures markets began with agricultural products,
and include other solid commodities such as metals and energy, futures contracts can be established on anything that's fungible.
That basically means one sample of the product is the same as any other. One ton of pork bellies is the same as any other ton of pork bellies, assuming they pass any meat inspection and quality standards, for example.
This includes various financial products, including the S&P 500 Index, e-mini S&P 500 Index, Dow Jones Industrial Average Index, e-mini Dow Jones Industrial Average Index, NASDAQ 100 Index, e-mini NASDAQ 100 Index, and Russell 2000 mini.
Obviously, one contract is interchangeable for another for all these, because the underlying index, and hence the standard contract value will be the same for all.
These futures contracts have become very popular. They're all traded electronically.
Plus, they're familiar to anybody who's interested in investing or trading, because they represent various and well-known segments of the stock market.
The average person may not know or understand all the factors involved in growing a crop of oranges to make orange juice with, or what can go wrong, or how to figure in supply and demand, but they hear about the Dow and S&P 500 indexes every day as a routine part of the news.
Of course, that doesn't mean they really understand why these indexes go up and down every day, or that they can predict those movements, but they've heard countless after-the-fact explanations delivered by reporters. After being told repeatedly about profit taking, about concern over economic reports and worries about politics and economic figures, many people probably think they understand these markets.
All of them trade on a CME Group Exchange, except the Russell 2000 mini which trades on ICE.
An S&P 500 futures contract is $250 X Index Value. Thus, if the index is 1100, the futures contract is $250 X 1100 = $275,000. The minimum tick is .10, which is $25.
The e-mini sized contracts are 1/5 of the above -- $50 X Index Value. But $12.50 per tick of .25 points.
This is the most popular of the stock index futures. The volume for the full-sized and mini versions dwarf that for the equivalent Dow, NASDAQ, and Russell indexes.
The S&P 500 is widely considered the best index for the stock market as a whole, since it's the largest 500 companies -- not just 30 as in the Dow Jones Industrial Average. It's widely used as a benchmark for evaluating stock fund performance.
This is no doubt partially true because professional fund managers and institutions use S&P 500 index to hedge their fund holdings. If the market goes down, they're protected to the downside. Some no doubt use it for speculation -- that is, to predict market movements and hope they're right.
The full S&P 500 contract trades in an open outcry environment during the business day, and electronically at night.
It is marked to market. That is, the value of your position is always the value of the contract. So if you take a position on margin and the market goes too far against you, you'll receive a margin call.
