What is an Index Future?

Summary

Equity index futures are less known to average investors but are powerful tools in the financial world. These cash-settled contracts are based on equity indices and offer the ability to hedge or speculate on market trends, operating nearly 24/6. CME Group, the world’s largest derivatives exchange, provides equity index futures and options across global markets, including popular indices like the S&P 500, NASDAQ 100, and Dow Jones. Their diverse offerings allow traders to manage risk and exposure efficiently in markets such as the US, UK, Japan, and China, making them essential for various financial strategies.

Takeaways

• 😀 Equity Index Futures are less known to average investors compared to stocks and bonds but serve as important financial tools.
• 😀 These are Futures contracts on Equity indices and are cash-settled with quarterly expiration dates in March, June, September, and December.
• 😀 Equity Index Futures provide market participants with an efficient way to hedge or express an opinion on equity index markets.
• 😀 Trading in Equity Index Futures is available nearly 24/5, 2 hours a day, 6 days a week.
• 😀 CME Group offers a variety of equity index products, including both Futures and options on Futures.
• 😀 CME Group's Equity Index products are based on globally recognized benchmarks, such as the S&P 500, NASDAQ 100, and Dow Jones Industrial Average.
• 😀 CME Group also offers international equity index products, including the FTSE Russell 100 (UK), Nikkei 225 (Japan), and FTSE China 50 (China).
• 😀 CME Group is the world's largest derivatives exchange, offering a deep and liquid marketplace for equity index traders.
• 😀 The CME Group’s equity products help traders manage or reduce risk exposure in the equity index market.
• 😀 In short, CME Group provides a wide range of equity index products suitable for various types of end users in the financial market.

Q & A

What are Equity Index Futures?

Equity Index Futures are futures contracts based on equity indices. They are cash-settled contracts that provide market participants with a tool to hedge or express an opinion on the equity index market.

How are Equity Index Futures different from stocks and bonds?

Equity Index Futures are less known than stocks and bonds. Unlike stocks, which represent ownership in companies, and bonds, which represent debt, equity index futures are contracts based on a basket of stocks in an index, allowing for speculation or hedging on the overall performance of that index.

When do Equity Index Futures typically expire?

The majority of Equity Index Futures have quarterly expiration dates, typically in the months of March, June, September, and December.

What advantages do Equity Index Futures offer to market participants?

Equity Index Futures allow market participants to efficiently hedge their positions or express an opinion on the performance of an equity index, and they are available nearly 24 hours a day, 6 days a week.

What is the role of CME Group in Equity Index Futures?

CME Group is the world's largest derivatives exchange, and it offers a variety of equity index products, including both futures and options on futures, covering major global indices.

What are some of the key equity indices offered by CME Group?

CME Group offers several well-known equity index futures, such as the S&P 500, NASDAQ 100, and the Dow Jones Industrial Average, as well as global indices like the FTSE 100, Russell 2000, Nikkei 225, and FTSE China 50.

Why are CME Group’s equity index products valuable to investors?

CME Group's equity index products offer liquidity and deep markets, providing traders with opportunities to accept or reduce risk exposure in equity index markets, making them valuable tools for hedging or speculation.

What types of traders use Equity Index Futures?

Equity Index Futures are used by a wide range of market participants, including institutional investors, hedge funds, and individual traders, for purposes such as hedging risk, speculating on market movements, or adjusting their equity market exposure.

How long are Equity Index Futures available for trading each day?

Equity Index Futures are available for trading nearly 24 hours a day, 6 days a week, providing flexibility for market participants around the globe.

What does the term 'cash-settled' mean in relation to Equity Index Futures?

Cash-settled means that when the futures contract expires, no physical delivery of the underlying asset (the equity index) occurs. Instead, the difference between the contract price and the final index value is paid in cash.