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The S&P 500 Index
futures price is different than the S&P 500 Index price in the cash (physical) market. Generally, the price of a commodity
for future delivery is higher than the cash price due to carrying costs. This is called contango. The opposite of contango
is backwardation. Backwardation is when the price of a commodity for future delivery is lower than the cash price. Backwardation
is normal in a “seller’s market.”
When you trade S&P 500 Index futures, your futures
price depends on where you get into the market. After you post your initial margin, your profit or loss depends on where you
enter and exit the market (minus transaction costs).
For example:
The size for one S&P 500 Index futures contract is $250 X the value of the index. So each 1
point move equals $250. As the market moves your account value adjusts. If your account value drops below the maintenance
margin a margin call is due. A margin call can be met by offsetting positions or adding money to your account.
S&P 500 Index futures contract trading can be both highly profitable and extremely risky because of leverage.
Leverage is the ability to control a large quantity of a commodity for a very modest investment. That investment is called
margin. Be certain you understand the risk of trading futures on margin before you consider opening a futures trading
account.
Trading futures is like driving a car without insurance. You save the insurance premium,
but if you crash you will wish that you were insured. If you have very deep pockets or deal with the physical S&P 500
Index product then futures may be for you. If you are a speculator with a limited amount of risk capital then S&P 500
Index options are a better way for you to invest in the S&P 500 Index market.
Click here to view the current futures
price of the S&P 500 Index.
Click here to contact a commodities broker with experience in the S&P 500 Index market.
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