Getting Started in Stock Index Futures Trading

 

S&P 500 Futures

The S&P 500 futures contract traded on the CME, sometimes referred to as the “big board”, represents the widely followed Standard & Poor’s 500 index. This index is seen as a benchmark of large capitalization stocks in the U.S and is the most commonly traded stock Wall Street Bull index futures contract.

There are currently two versions of the S&P 500 futures contracts traded on the CME division of the Chicago Mercantile Exchange. Although the CME has ceased trading in most open-outcry futures pits on July 1st 2015, to make way for fully electronic execution in the futures markets, the futures exchange opted to keep the full-sized S&P 500 futures contract trading in a pit. Accordingly, traders can opt to execute their S&P 500 futures orders in the open outcry pit using the “big” S&P, or electronically using the e-mini S&P 500 futures contract.

The full-sized S&P futures contract has a point value of $250 with a minimum tick of .10. Floor brokers often refer to an S&P point as a “dollar”. For every point, or dollar, that the price moves higher or lower a trader will be making or losing $250. Thus, the contract size of the index is calculated by multiplying the index value by $250. For example, if the futures contract is currently trading at 2050.00 then one full sized S&P 500 futures contract is valued at $512,500. Similarly, a trader that goes long an S&P futures contract at 2089.40 and is forced to sell it due to margin trouble at 2053.20 he would have sustained a loss in the amount of 36.2 points or $9,050 plus the commissions paid to get into the trade. Once again, many traders aren’t willing to accept this type of volatility in their trading account and opt for the benefits of the e-mini version of the contract.

The e-mini S&P 500 is one fifth the size of its full-sized counterpart and unlike the larger version, the minimum tick is a quarter of a point or .25. With that said, the point value is $50 and the contract size is also one fifth the size of the original contract. If the e-mini S&P is trading at 2050.00 the value of the contract would be $102,500. Now that is more like it. An e-mini S&P futures trader is exposed to risk but relative to the “Big Board” contract it is much more controllable. When it comes to leverage, less is sometimes “more”.

A trader that goes long the e-mini S&P from 2035.00 and is able to sell the position at 2052.25 would have realized a profit of 17.25 points or $862.50. Again, this is figured by subtracting the sale price from the purchase price and multiplying the difference by $50.

2052.25 – 2035.00 = 17.25

17.25 x $50 = $862.5

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