Can somebody explain the concept of index futures?

A

anituchka

Ok, this is a dumb question, but can somebody please explain the concept of index futures? I read about futures re commodities and it makes sense but I can't understand how it applies to index futures?

I opened e-mini futures (ES) on my chart, to me trading it is just like a stock, 1 tick-$12.50, and it looks like it is very volatile, so I keep losing money in my paper a/c. Also, I can't understand how the expiry date works here?

Can somebody recommend a good book on e-minis or mini-dow?
 
Quote from anituchka:
----the concept of index futures?
----how the expiry date works here?
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1) With index futures, you can buy the underlying index with one trade instead of buying each of the underlying components in the index one-at-a-time while attempting to replicate the index.
2) Don't get too hung up on understanding expiration details. Trade the most active contract and you'll avoid unnecessary trouble. :cool:
 
It offers a trader the opportunity to replicate the index with the benefit of avoiding transaction costs on all of the underlying firms' stocks, however owning a futures contract on the index does not offer dividends like the underlying. Therefore the index future has an added value (from saving on transaction costs) but also a reduced value (from no dividends granted).
 
Quote from Metamorphosis:

It offers a trader the opportunity to replicate the index with the benefit of avoiding transaction costs on all of the underlying firms' stocks, however owning a futures contract on the index does not offer dividends like the underlying. Therefore the index future has an added value (from saving on transaction costs) but also a reduced value (from no dividends granted).
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It would be far more simple to just say it is the index of all these stocks, because the index as well computes no dividends.
 
Thanks guys, it is easier than I thought.

I was trying to figure out the significance of the expiration dates (i.e. the link to the actual commodities) but I guess in practice, there is none?
 
Quote from anituchka:

Thanks guys, it is easier than I thought.

I was trying to figure out the significance of the expiration dates (i.e. the link to the actual commodities) but I guess in practice, there is none?
More...

Read about 'max pain' It is as relevant to futures expirations as it is with equity options.
 
I would skip eminiaddict and just go straight to tradethemarkets.com

Get it straight from the horses mouth instead of through a poser.

Futures expiration has nothing to do with anything, because the futures contracts are cash settled. They're really nothing more than a bet.


Options expiration is very different from futures expiration, because they're is an underlying with options, and many physical trades are all forced to take place on one specific day at one specific time.


They have absolutely nothing whatsoever in common.
 
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