Equity Futures

Equity futures are futures on stock market indicies. The biggest equity markets include the Dow Jones Industrial index, S&P 500 and the FTSE100 in the UK.

Trading Index futures is an ideal way to speculate on price movements of the big indicies without having to physically own the shares. One advantage that makes equity index future trading appealing is the fact that these contracts typically have a low margin requirement.

Equity Index Future Pricing

The pricing of equity futures is quite easy to understand. The way the pricing works is the amount of interest you could earn in cash minus the dividends that the shares would pay. For example if the US benchmark interest rate was 3% and the Dow companies paid an average of a 2% dividend over a year, A contract with a one year expiry would be around 1% more expensive than the current spot price. If interest rates are very low in a country, more distant contacts can even be cheaper than near contracts. Equity index futures are more appealing to many traders when interest rates are low.

Dow Jones Futures

Dow Jones Futures are futures contracts on the Dow Jones Industrial Index. The Dow is made up of the biggest companies across nine industries.

Dow Jones Chart

As you can see from the Dow Chart. The dow performance between 2001-2003 was very poor. This was a major bear period for most of the global stock markets.

Dow Futures Contract

A standard dow contract is 10 times the index value. For example if the index is priced at 13,000 points, the contract will be for $130,000.

There are also mini sized dow futures (also known as dow emini). These contracts are half the size of the standard contracts.

The Symbol for Dow contracts is ZD. The mini dow contract symbol is YM.

This futures contract is traded on the CBOT exchange. The initial margin requirement is currently $7,005. The maintained margin requirement is $5604. The margin requirements for the mini contract are half of this.

FTSE Futures

FTSE Futures are contracts on Britain’s top 100 companies. The FTSE 100 companies make up the majority of the capitalization on the London Stock Exchange, around 80%. Some of the top companies include Royal Dutch Shell, BP, Barclays PLC, HBOS, Vodaphone.

FTSE Chart

As you can see from the chart, the ftse performance has been fairly similar to the dow.

FTSE Contracts

FTSE 100 Index futures are priced at 10x the FTSE price. For example if the FTSE is priced at 6,000, the contract will be £60,000. Margin requirements are typically around £3,000 initially and £3,000 for maintenance.

The FTSE 100 futures contract symbol is LFX.

Nasdaq Futures

Nasdaq Futures are futures contracts on the Nasdaq 100 index. The Nasdaq contains companies both in and out of the United States. The index is tech heavy and does not include financial companies.

Nasdaq Chart

As you can see from the chart, the Nasdaq performance has been good in recent years, but fell drastically during the tech bubble burst.

Nasdaq Futures Contract

One contract is 100 times the price of the index. For example if the Nasdaq was priced at 2,500 points, a standard contract would be worth $250,000. There are also mini nasdaq contracts that are half of this value. Margin requirements are $16,250.00 for the initial margin and $13,000 for maintanence. The requirements for the mini contract are half of this. The symbol standard nasdaq contracts is ND and NQ for the mini contract.

S&P 500 Futures

The S&P500 consists of 500 large cap stocks. The vast majority of these are companies based in the United States.

SP 500 Chart

As you can see from the SP 500 chart, the S&P performance was good between 2003-2007, rising by around 50%. However, 2001-2003 was poor and the beginning of 2008 wasn’t good either.

SP 500 Futures Contract

The SP 500 contract is 250 times the price of the index. For example if the S&P 500 is currently priced at 1,500 points, the contract will be $375,000. This is too high for many traders. There is also a mini contract. The mini contract is 5 times smaller than the standard contract. Margin requirements for the standard sp500 contract are around $22,500 initially and $18,000 for maintenance margin. The symbol for the standard contract is SP and the symbol for the mini is ES.