How to Trade Stock Index Futures
Unlike in the past, when trading futures was reserved for members of the big Futures Exchanges, such as the Chicago Mercantile Exchange (CME) and Chicago Board of Trading (CBOT), traders can now easily enter orders online, and trade with the big boys. Stock Index Futures, also known as Equity Index Futures are a popular product for trading as they have high liquidity, narrow spreads, and offer a diverse selection of trading choices. Additionally, Stock Index Futures are also available in a smaller version called E-Minis, which are 1/5th the size of a standard contract, and can be traded with smaller margin requirements.
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Instructions
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Open Futures Trading Account
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1
Open a futures trading account. The CME has a Broker Directory on their website with a list of U.S. Brokers that allow futures trading. The directory is at cmegroup.com/education/find-a-broker/broker-directory-na.html.
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2
Check broker details about margin requirements. Each futures contract has a minimum cash balance needed per contract to open a new position. Also, once positions are opened, a minimum cash balance is needed per contract to continue to hold the position. Differing stock index futures will have different margin needs.
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3
Based on expected contracts to be traded, fund your account accordingly.
Calculate Margin Requirements and Place Trades
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4
Decide which equity index product to trade and check margin requirements for that product to see how many contracts can be traded.
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5
Enter the stock index futures symbol and amount of contracts into the trading platform's order entry window. There may be multiple methods for entering orders in the trading platform.
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6
Enter order price and press buy or sell. Many trading platforms for trading equity index futures allow one-click trading, so steps 1 and 2 don't need to updated and are inserted by default, and you only need to click on the price to automatically enter the order.
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Tips & Warnings
Trading of the most current contracts have the most liquidity and are called the forward contract. One click trading is risky, but is the quickest way of trading futures, and most brokerage firms offer a demo trading platform for practice trading.
Unlike stocks, futures products have expiration dates. Therefore, traders need to realize these dates, as holding a future contract beyond expiration may cause the position to automatically close or be exercised.
