S&P Futures

The index futures contracts which feature S&P 500 as the underlying index are known as S&P futures contracts. The S&P 500 is considered as a leading indicator on U.S. equities. The S&P 500 has been published since 1957, which is the most widely followed index after the Dow Jones Industrial Average. The S&P works as a key barometer of the overall market.

The Standard and Poor’s 500 stock index is traded in the Chicago Mercantile Exchange. The S&P 500 is a value weighted index, in which each stock's weight is directly proportionate to market value. The S&P 500 index is the cash equivalent of the S&P 500 futures. However, there are considerable differences in several aspects.

Basically, the S&P 500 comprises an index of the prices of 500 large capcommon stocks that are actively traded in the US. The stocks that are included in the S&P 500 belong to large publicly held companies. It is also a leading indicator for many individual stocks such as America Online, Cisco Systems, Dell Computer and Microsoft Corporation. Intraday movements in the S&P Futures contract often precede similar moves in the preceding stocks. This provides a trader with some scalping opportunities.

How do S&P Futures Work?

The futures contract on the S&P 500 stock price index is the most used equity futures contract. To benefit from the S&P Futures, traders normally take intraday long positions when the S&P is above its opening price and rising. They opt for short position when it is below its opening price and dropping further. It is recommended to use the support and resistance analysis of the S&P. This helps to time intraday buys and sells and combine reversal periods with the S&P so as to anticipate potential market turns.

Benefits of S&P Futures

S&P futures contracts are useful for hedging a stock portfolio against unexpected market fluctuations. The S&P futures contract allows large traders and investors to bet on the market’s future direction. This is typically traded by institutional investors. It is also closely scrutinized by industry experts and market professionals.

Risks of S&P Futures

Since index futures trading are very close to betting, it features a highly unpredictable character and runs a high risk of losing money.