How to Trade Index Futures

Index futures trade on the value of specific stock market indexes.

Index futures are futures contracts that trade based on the value of a specific stock index. The Chicago Mercantile Exchange, the world's largest futures exchange, offers futures trading in about 15 different stock market indexes. The e-mini S&P 500 and e-mini Nasdaq 100 contracts are popular with individual traders. The steps to learn futures trading are the same for any of the index futures.

Instructions

1. Apply for and fund an account with a commodities and futures broker, who must be registered with the Commodities Futures Trading Commission. Commodities brokers place the trades for futures traders; most stockbrokers do not offer commodities and futures trading.

2. Select a software trading package, download and install it on your computer. Dedicated futures brokers usually offer a choice of trading software systems with different features and costs. A broker's representative can help you select an appropriate package and set it up for the type of trading you want to accomplish.

3. Practice trading using a simulated money account. Your broker should set up a practice account for you that uses simulated money and a live account for real money trades. Use the practice trading account to learn how to use the software package to place trades and to try different trading strategies.

4. Start live trading with single contract trades when you are consistently profitable with your practice trading. You perform futures trading by placing buy and sell orders for a specific number of contracts. Each contract has a certain dollar value and has a required minimum margin deposit. For example, the e-mini S&P 500 contract is valued at $50 times the current value of the S&P 500 index. If the S&P 500 is at 1,200, one e-mini contract would have a value of $60,000. The margin deposit for an e-mini contract is $5,625.

Tips & Warnings

• Your futures broker will offer online training and seminars to help you develop a trading strategy and techniques, which you can perfect using the simulated account. It may take three to six months of practice trading to become proficient at futures trading. Do not switch to live account trading with real money until you are comfortable with the trading system and your trading skills.

• Futures trading includes the risk of losing all your trading capital and more. Futures trading should only be done with money you can afford to lose entirely. Do your own research and understand the risks before starting any index futures trading program.

References

• Investopedia: Index Futures
• CME: E-mini S&P 500 Futures
• CTFC: Education Center