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MGFC30: Introduction to Derivative Markets
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However, experienced traders will use index futures to speculate on the direction of an index. Instead of buying individual stocks or assets, a trader can bet on the direction of a group of assets by purchasing or selling index futures. By their nature, stock index futures operate differently than futures contracts for tangible goods such as cotton, soybeans or crude oil.
Long position holders of commodities futures contracts will need to take physical delivery if the position has not been closed out ahead of expiry.
Strategies with VIX and VSTOXX Futures · The Hedge Fund Journal
Businesses will frequently use commodity futures to lock in prices for the raw materials they need for production. CME Group. Hong Kong Exchanges and Clearing. Financial Industry Regulatory Authority. Financial Futures Trading. Stock Trading. Day Trading. Metals Trading.
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Your Money. Personal Finance. Your Practice. Popular Courses. Part Of. Introduction to Futures. Overview of Futures Products. How to Trade Futures. Futures Trading Considerations.
What Are Index Futures? Key Takeaways Index futures are contracts to buy or sell a financial index at a set price today, to be settled at a date in the future. Portfolio managers use index futures to hedge their equity positions against a loss in stocks.
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Speculators can also use index futures to bet on the market's direction. International markets also have index futures. Pros Portfolio managers use index futures to hedge against declines in similar holdings. Brokerage accounts require only a fraction of the contract's value held as a margin.
What Are Index Futures?
Index futures allows for speculation on the index price movement. Business use commodity futures to lock in commodity prices. Cons Unnecessary or wrong direction hedges will damage any portfolio gains. Brokers can demand additional funds to maintain the account's margin amount. Index futures speculation is a high-risk undertaking. Unforeseen factors may cause the index to move opposite from the desired direction. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts.
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Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. Related Terms Quadruple Witching Quadruple witching refers to a date that entails the simultaneous expiry of stock index futures, stock index options, stock options, and single stock futures. Futures Futures are financial contracts obligating the buyer to purchase an asset or the seller to sell an asset at a predetermined future date and price.