A guide to SP500 FuturesSP500 futures are an excellent way to trade the S&P 500 index. The S&P 500 consists of 500 large cap stocks, most of these are American corporations.There are many funds that attempt to track the S&P 500 However, trading the SP500 contract has many advantages over many of the alternatives including:
SP 500 chart
As S&P chart shows above, the SP 500 performance has been very good over the last few years, rising around 50% since 2003. The standard S&P contract is 250 times the size of the current price of the index. For example if the S&P500 is currently priced at 1,500 points, the nominal value of the contract will be 1,500 * 250 = $375,000. The margin requirement for this contract is currently $22,500 and maintenance margin is currently $18,000. This is a very high nominal value for a new or small traders. There are smaller SP emini contracts that may be more suitable Let's look at an example of trading a standard contract: Let's say the S&P is currently priced at 1,500 points and Fred has looked at his charts and believes there is an excellent chance the price will hit 1,600 within the next 12 months. Fred could buy a standard SP500 Futures contract. He would need to buy a contract with an expiry date more than 12 months in the future. He would need to put up the margin requirement as mentioned above of $22,500. Let's say that after 12 months the S&P500 was priced at 1,624 points. Fred would be very pleased as his target of 1,600 was beaten. His contract would be 124 points up (1,624-1,500). As we know each point is worth $250 it would leave Fred with a profit of $31,000. This is the 124 points profit multiplied by the $250 per point. On the other, if Fred was wrong in his speculative view and the price of the S&P dropped to 1,400 points. Fred would have lost $25,000. He would also be required to add funds to his broker account as the maintenance margin would need to be kept over $18,000.
As this clearly demonstrates, there is a lot of potential to earn great returns trading SP 500. However, it is essential to be fully aware of the risks.
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