Emini Futures S and P 500 And NASDAQ
100
Basic Trading Info
What are Index Futures?
Future contracts originate from commodity trading. A future
contract is an obligation to buy/sell a certain quantity of
commodity at a specific date for a specific price determined at the
outset of the contract. Future contracts are frequently used for
hedging risks and also for speculation.
For example, with the recent hike in oil prices, an airline company
which uses a lot of fuel might want to hedge it's exposure to oil
prices through the purchase of oil futures. If the price of oil is
$60 now and is expected to go up to $70 within 3 months, the
airline would hedge its exposure by purchasing the 3 month future
contracts so long as the agreed price is less than $70.
Oil prices now $60
Expected oil price in 3 mth's time (by airline) $70
Price of 3 mth oil contract (by oil producer) $68
Actual price 3 mths later $65
Let's assume the airline can find an oil producer willing to sell
oil 3 month later for $68, the company would enter a
futures agreement with this oil producer for
delivery of a certain quantity of oil in 3 month's time. If the
price of oil falls to $65, the airline still has to purchase at the
agreed price of $68. But what propelled the airline to enter the
futures contract in the first place is its
expectations of future oil prices going up to $70 in 3 months and
buying at a price below $70 (3 months later) seemed reasonable to
the company.
Index futures are cash settled, there is no
physical delivery of commodity as in the case of wheat, corn, etc.
Although index futures can also be held for the
long term, the time span we are concentrating on is a day. We are
using the index futures as a vehicle for
speculation and not for hedging as in the case of the airline
company.
What is the Emini S&P 500 and NASDAQ 100?
NASDAQ 100 and S&P 500 index
futures is listed on the Chicago Mercantile
Exchange (CME) and trades on the Globex electronic system. CME acts
as the counter party for each trade, hence if you short futures,
CME will be taking the long position and vice versa.
NASDAQ 100 Emini contracts is actually one fifth
the size of their larger counterparts, the NASDAQ
100 index futures. Each point of the index will
represent $20 and the minimum fluctuation ( tick size ) is 0.5
points which is equivalent to $10.
S&P 500 Emini contracts is actually one fifth
the size of their larger counterparts, the S&P
500 index futures. Each point of the index will
represent $50 and the minimum fluctuation ( tick size ) is 0.25
points which is equivalent to $12.50.
Globex opens from 16:30(EST) on weekdays and 18:00(EST) on Sundays
and public holidays. The closing time is 16:15(EST) on all days.
However, there will be a scheduled maintenance of Globex from 17:30
till 18:00 (Monday through Thursday, nightly). I know the timings
can be quite complicated, however as day traders, we are mostly
concerned with trading when the market is opened
as we have to capitalize on the higher liquidity available. I do
not recommend entering trades after market hours, due to low volume
which leads to slippage. The time span you have to concentrate on
is really the market opening hours from 9:30 till 16:15 (EST).
More information regarding the contract specification of the Emini
can be found on CME's website.
symbols for the S&P 500 and NASDAQ
100 Emini index futures. Both the NQ and ES emini
contracts have expiry months in March, June, September and December
which are denoted by the letters "H", "M", "U", "Z" respectively.
Hence NQ05Z will represent the NASDAQ 100 emini
contract with expiry month in December 2005. Similarly, ES06H will
be the symbol for an S&P 500 emini contract
with expiry month in March 2006.
March H
June M
September U
December Z
About The Author:
Michael Taylor is a professional trader and webmaster of
http://www.daytradeemini.com He regular
updates his trading blog at http://www.daytradeemini.com/blog
with educational articles and
trading records.
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