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Trading Index Futures

Innoware
Trading Index Futures

Innoware's Weekly Blog - Edition 7 - December 25, 2017

Happy Holidays!!

On days like this, when there are 3 days when you can’t trade, do you fell that time should fly faster so you can see the next trading day pretty fast?

Well, now one can trade crypto currencies 24x7. If you into equities, then trading futures allows you to trade almost 24x7.

In this blog, I will cover trading index futures.

The only prerequisite is that you need at least $5,000 in your brokerage account for trading futures. Your brokerage should allow futures trading (Tastyworks.com is an ideal brokerage for this).

You can use the below link to open a tastyworks.com account (Without a referral code, you can’t open an account). Also, when I pass the below link around, I don’t benefit in any way.

https://start.tastyworks.com#/login?referralCode=GC66YJ2VTQ

The Index Futures

The 4 common and most widely traded index futures are

  • the E-Mini S&P 500 which has the ticker /ES
  • the E-Mini NASDAQ 100 which has the ticker /NQ
  • the E-Mini DOW which has the ticker /YM
  • the E-Mini Russel 2000 which has the ticker /RTY

Month Codes and Expiration Months

Each month for Futures has a code as reflected in the below table:

Month

Code

January

F

February

G

March

H

April

J

May

K

June

M

July

N

August

Q

September

U

October

V

November

X

December

Z

 

For the 4 equity based indexes, new futures expire in the months H, M, U and Z – on the second Thursday of March (H), June (M), September (U) and December (Z).

For example, E-Mini S&P 500 Futures expiring in March 2018, will have the ticker /ESH8

Contract Rollover occurs on the Thursday a week before the expiration Friday - for the e-minis, this is the second Thursday of March, June, September and December.

Even though the previous contract continues to trade until expiration, the majority of trading moves to the next contract.

 

Tick Size, Tick Value, Initial Margin and Fees

When trading index based futures like ES, YM, RTY and NQ, you get paid (and also can lose) based on Tick Size and Tick Value.

Let us assume that you buy ES at 2689. If you subsequently sell ES at 2689.50, then you gained 2 ticks, since the tick value of ES is 0.25. Also, the tick value for ES is $12.50. In this example, you will gain 2 ticks (of 0.25) x $12.50 minus brokerage fees and commission (for both buying and selling which would approximate $2.50 each way). We are assuming that you bought and sold 1 ES futures contract here, and so the brokerage will deduct a buying power of $4,950 from your account when you buy 1 contract of ES.

The below table lists the tick size, tick value and initial margin for each of the 4 index futures:

Future

Tick Size

Tick Value

Initial Margin

/ES

0.25

$12.50

$4,950

/NQ

0.25

$5.00

$4,950

/YM

1

$5.00

$4,950

/RTY

0.1

$5.00

$3,025

 

Strategy of trading index futures

A simple strategy in trading index futures would be to start a long position on dips.

We will cover some strategies for trading these index futures in one of our future blogs.