Futures are exchange-traded derivatives locked in for delivery on an upcoming date at a price established in the present. While commodities make up a significant portion of the trading in this space, other indexes are also given equal priority.
For instance, the Standard and Poor's 500 (S&P 500) is one of the most popular equity indices in the US stock market futures. Two other prominent examples include Dow Jones Futures and NASDAQ 100 Futures.
As such, this article examines some of the underlying subtleties of the US futures market and the potential they offer to traders and investors.
The American market futures is an avenue for companies, producers, suppliers, and traders to avoid market volatility.
Here’s an example to understand this better:
Supplier A and Trader B agree on a fixed amount for Commodity X. Let's just assume that the sum is $10. Now, both parties stand to make a profit if that price does not fluctuate due to market volatility.
Subsequently, Investor C enters into a contract with Supplier A and Trader B, where all parties agree to adhere to the previously mentioned amount ($10). However, the new condition states that if the price goes beyond $10, Investor C pays the difference to Trader B.
Similarly, if market movements make the amount drop below $10, Supplier A and Trader B stick to the established rate, while Investor C gets to pocket the margin. Put simply, all three parties benefit from this arrangement.
Note this is just a hypothetical example. The base principle, however, remains the same. Futures trading involves establishing the purchasing and selling prices today and adhering to those agreed-upon rates during market volatility.
This applies to all prominent US stock market futures and exchanges, such as the New York Mercantile Exchange (NYMEX), the Chicago Board of Trade (CBoT), the Chicago Mercantile Exchange (CME), and the Minneapolis Grain Exchange.
Engaging with the American market futures offers several benefits. However, these advantages also come with specific conditions.
For example, investors must put up a fraction of the contract value as collateral to trade futures. That gives them access to higher stock values that they may not be able to buy typically. So, a trader could take a position of $100,000 for a specific share or commodity by putting up $10,000 as collateral.
Even so, this opportunity for leverage also mitigates the respect for market risks. In short, most investors can make significant speculations with little to no upfront costs, which may upset market movements.
Regardless, commission for futures trading is generally low, often up to only 0.5% of the total contract value. This motivates most traders to engage with the market consistently.
While profitable, the US stock market futures poses considerable challenges to overcome. Foremost among those is the potential volatility with certain derivatives or commodities.
That is what Fi Money can help you navigate. Besides offering access to prominent US-based companies, the platform hosts in-depth guides that serve as advisory manuals for beginners and veteran traders. More importantly, the app provides curated collections of stocks and shares based on current trending market movements.
So, why go at it alone when you can leverage Fi Money’s expertise? Sign up on the app today!
US futures indexes are open virtually 24/7, six days a week. However, specific products, derivatives, or securities have unique trading hours depending on current market movements and fluctuations.
Indian investors can engage with the US market through an overseas trading account. This involves partnering with a domestic brokerage firm with associations to stock brokers in the US. Fi Money offers precisely this. You can find more information regarding this here.