Equity index futures, a widely traded asset, are popular among investors aiming to speculate or hedge, as futures contracts offer leverage. With that said, it's important to understand the risks and rewards associated with trading futures products. tastytrade offers investors all four major U.S.-based indices ranging from the large-cap stock indices like the Dow, Nasdaq-100, and S&P 500 to small-cap stock with the Russell 2000. Additionally, each standard E-mini indexfutures contract also has a micro-sized contract that is 1/10ththe size in notional value.
- /ES – E-mini S&P 500
- /MES – Micro E-mini S&P 500
- /NQ – E-mini Nasdaq-100
- /MNQ – Micro E-mini Nasdaq-100
- /YM – E-mini Dow
- /MYM – Micro E-mini Dow
- /RTY – E-mini Russell 2000
- /M2K – Micro E-mini Russell 2000
All equity index futures at tastytrade are financially settled. All equity index futures have options except for /MYM and /M2K.
What are equity index futures used for?
Equity index futures contracts offer exposure to broad-based market sectors and potentially greater leverage relative to other trading instruments such as ETFs and index options. In other words, futures contracts can be traded with a fraction of the capital relative to the actual risk of the product. With this leverage comes a greater potential reward, but also a greater potential risk of loss.
Learn more about futures margin
Aside from using equity index futures to provide directional exposure to the stock market by speculating, both large and small investors can use equity futures to hedge their portfolios. Equity index futures can help hedge a portfolio's directional exposure.
For example, institutional investors, primarily investors long S&P 500 stocks or managing a portfolio highly correlated to it, can sell E-mini S&P 500 futures (/ES) contracts to provide some downside protection if they believe the S&P 500 will fall. Conversely, institutional investors, primarily investors short S&P 500 stocks or negatively correlated to it, can buy /ES contracts to hedge or protect themselves from upside risk.
Retail investors with smaller accounts might use micro-sized futures contracts to hedge their portfolios or speculate as those might be a more appropriate size. Investors must review their account size, portfolio composition, and exposure levels when determining which futures contract—E-mini or Micro—is an appropriate level for a trade.
Notable Characteristics
Although traditional stock market indices like the Dow Jones Industrial Average, Nasdaq-100, and Russell 2000 tick in penny (0.01) increments, that does not apply to their respective futures contracts. Instead, index futures tick differently, each with a different minimum tick and a tick value. Please visit the tastytrade Help Center to view tick size and value of all futures contracts offered at tastytrade.
Another notable characteristic of equity index futures is that they all expire on the third Friday of every third month at 8:30 AM Central (Chicago Time). Moreover, all equity index futures contracts, E-mini and micros, settle financially (cash-settled) and can be traded or closed until expiration.
How to read an equity index futures quote
Since the tick values for each equity index futures contract vary, investors that want to trade them must know the notional value and tick values of each contract to understand their exposure. Let's look at a standard E-Mini S&P 500 futures (/ES) contract and a Micro E-Mini S&P 500 futures (/MES) contract to illustrate the difference in notional exposure and risk.
Investors may notice when quoting the same contract month of both contracts that they quote and tick in lockstep together. The main difference between the E-mini and micro contracts is their total notional value.
The standard E-mini S&P 500 that quotes a last price of 4,591.75 has a notional value of $229,587.50 (4591.75 index price x $50 per point). A change of +38.00 equates to a $1,900 (38 x $50) gain when long a contract from its open price, or a loss of -$1,900 when short a contract. Moreover, the contract ticks in a quarter (0.25) increment instead of in pennies. Each tick is worth $12.50 ($50/4).
The Micro E-mini S&P 500, on the other hand, is 1/10th the size of its standard E-mini counterpart. As a result, an /MES contract has a total notional value of $22,958.75 instead (4,591.75 index price x $5 per point). A change of +38.00 equates to a $190 gain when long a contract from its open price or a loss of -$190 when short a contract. The micro contract also ticks in quarter increments, with each tick worth $1.25.
Price Impact Factors
Any investor who keeps a pulse on the stock market knows that anything can affect the current and future performance of the markets. Since futures markets trade nearly 23/5 and the stock market is only open from 8:30 AM to 3:00 PM CST, any world or business event outside regular trading hours is usually felt first in the equity index futures market. That said, factors that may affect equity index futures prices may include, but are not limited to:
- Politics
- Corporate earnings
- Geopolitical issues
- Currency valuation
- Economic news and releases
- Breaking news
