The US equities markets are the world’s benchmark for wealth and prosperity. According to the World Bank, the aggregate value of US stocks is upward of $33 trillion, nearly half of the global handle ($68 trillion). Because of this concentration of valuation, millions of traders and investors choose US equities as a means of pursuing their financial goals.
Aside from simply buying and selling issues listed on the New York Stock Exchange (NYSE) or NASDAQ, there are many other ways of gaining exposure to US equities. Among the most common are mutual funds, exchange-traded funds (ETFs), options, and futures contracts. One of the premier methods of capitalizing on American stocks is through S&P 500 futures investing.
What Are S&P 500 Futures?
Second only to the Dow Jones Industrial Average (DJIA) in terms of reputation, the Standard and Poor’s 500 (S&P 500) is a globally prominent equities index. The S&P 500 tracks the performance of the 500 largest US-based companies as weighted by market capitalization.
Accordingly, S&P 500 futures are financial derivatives based on the relative valuations of the S&P 500 index. Listed for trade on the Chicago Mercantile Exchange (CME), S&P 500 futures investing strategies are executed using one of three contracts:
| Product | Symbol | Tick Size | Day Trade Margin |
|---|---|---|---|
| Full-Sized S&P 500 Futures | ZSP | $25.00 | $36,300 |
| E-mini S&P 500 Futures | ES | $12.50 | $500 |
| Micro E-mini S&P 500 Futures | MES | $1.25 | $100 |
The CME’s lineup of S&P 500 futures products provides traders and investors with a collection of unique opportunities. Whether you’re a high-net-worth investor or an intraday retail trader, S&P 500 futures have an ideal product for your needs.
Key Elements of S&P 500 Futures Investing
Full-sized, E-mini, and Micro E-mini S&P 500 futures give market participants an opportunity to engage the S&P 500 index. However, S&P 500 futures investing is very different from simply buying the S&P 500 and waiting for an uptick in value. Here are the top three ways the two disciplines vary.
1. Leverage
Perhaps the greatest difference between trading S&P 500 futures and the index itself is the use of leverage. Futures contracts are traded on margin, meaning that only a small deposit is necessary to take a much larger position in the market. The result is an enhanced risk profile and the possibility of generating much greater returns than through a standard mutual fund or ETF.
2. Expiration
It is important to remember that each and every futures contract comes with an expiration date. Expiry designates when all outstanding positions are settled and the contract is no longer open for trade.
Expiration is a critical consideration for anyone active in S&P 500 futures investing. Contracts cannot be held in perpetuity like a mutual fund or ETF; open positions must be periodically “rolled over” to extend the investment horizon.
3. Sunk Costs
Sunk costs are one of the primary contrasts between futures and mutual funds or ETFs. Investment positions are taken in the futures markets according to a straightforward, all-in fee structure. Participants buy or sell contracts and are liable only for commissions, exchange fees, and clearing fees.
For instance, the all-in cost of trading one lot of E-mini S&P 500 futures can be as low as $5 for average retail traders. Conversely, mutual funds and ETFs often feature substantial service-oriented costs, including sales charges, management fees, commissions, and redemption fees.
Getting Started with S&P 500 Futures
A great way to begin your S&P 500 futures investing career is by taking advantage of the broker-assisted options provided by StoneX. Broker-assisted traders benefit from expert advice, professional strategies, and top-notch trade execution―all extremely valuable assets for anyone interested in succeeding in futures.
