Equity Future Contracts

Currently one of the most largely traded markets is the equity futures market. Frequently newer traders and even some seasoned investors do not realize that there are many stock exchange products within futures. There are numerous forms of equity futures, one being stock futures, EFT futures and another called stock index futures. Equity future contracts are an agreement to sell or buy a precise amount of equity (individual), equity index, or perhaps a 'basket' of equities at a contract price and settled on a specific date sometime in the 'future'.

Stock index futures are futures markets where the underlying asset is actually a stock index, for instance the Dow Jones, or the FTSE100. The pricing is based upon the prices of many companies. This particular market is typically settled by means of cash, and not the delivery of the underlying product. These are traded in the same manner as currency and commodity future markets and are measured by the capitalization of the particular company. Recent reports have confirmed that using stock index futures for direct hedging instruments have been highly effective and a top strategy to balance risk.

Stock futures are to buy or sell stock; however, you never receive or own the actual stock certificate. This contract typically they will never reach the actual expiration date determined within the contract. They are also traded on the futures exchange. Single stock futures (SSF) are usually large corporation stock such as Apple, Microsoft, etc. The trader will also not be entitled to dividends from this method of trading, as the stock is not owned by the futures trading investor.

EFT futures which is short for Exchange Traded Fund, is a security which tracks commodities, baskets of assets or the index. These futures contracts are generally less expensive than mutual funds, and are traded like stocks. Often use this equity future as a strategy to gain exposure to different market sectors. They are flexible and offer an easy entry. EFT futures are different than that of EFTs, as they do not offer an expiration date.

There are many benefits which pertain to the equity futures derivative; they offer the trader tax efficiency, lower commission expenses as well as offering transparency. There is also a wide array of trading strategies which offer flexibility and convenience. One such opportunity which is often used by short term traders is following and monitoring volatility levels, these levels often are indicators of the upcoming market movements.