If 2020 has taught us anything, it is that the unpredictable can lead to chaos in capital markets. For smart market participants, COVID-19-induced instability Presented a wide range of profitable opportunities. Unfortunately, those who focused their efforts solely on equity trading missed out on the benefits of stock index futures.
Let’s take a look at some of the areas where equity futures outperform traditional stock offerings.
According to Nasdaq’s Financial Dictionary, Diversity “Funding is the division of money among different types of securities with different risk, reward and correlation figures in order to reduce volatility risk.” As it pertains to equity trading, diversification plays a vital role in mitigating risk as well as capitalizing on overall market performance.
However, actually diversifying your stock holdings is easier said than done. To gain broad market exposure, you may need to invest in professionally managed mutual funds or index-based . should invest in ETFs-Or choose and buy a variety of stocks. Each of these approaches comes with unique drawbacks, including management fees, tracking errors, and extensive research.
Stock index futures are more predictive than equity market diversification. In fact, they take it to the next level. With Index Futures, you can easily open took advantage of Long or short positions in US stock indices. You don’t need to assume ownership of individual stocks, and you don’t need to invest in inverse ETFs or have special brokerage arrangements to short the market.
In comparison to traditional equity trading, index futures offer significantly increased purchasing power. Like all futures, stock index products are traded on margin, within 3-12 percent of the estimated value of each contract. By comparison, Regulation T allows borrowing of only 50 percent of the value of the security, with 25 percent kept in the trader’s account at all times. Due to lower margin requirements, equity index futures provide the trader with far greater capital efficiency than stocks.
One of the major advantages of equity index futures is that they allow the trader to choose how much leverage is appropriate. CME’s lineup of e-minis and micro e-minis, as well small stock, gives you the ability to customize your risk exposure:
|Product||tick value||intraday/overnight margin*|
|Micro E-mini Dow||$0.50||$100/$990|
|E-mini S&P 500||$12.50||$750/$12,100|
|Micro E-mini S&P 500||$1.25||$100/$1,210|
|Micro E-mini NASDAQ||$0.50||$125/$1,760|
|E-mini Russell 2000||$5.00||$750/$7,150|
|Micro E-mini Russell 2000||$0.50||$100/$715|
|small stock 75||$1.00||$500/$550|
|small tech 60||$1.00||$500/$550|
*Margin requirements are subject to change
in addition to advanced capital efficiency You are free to trade stock index futures as many times as you think fit. In traditional equity trading, you “pattern day trader” You can place up to three intraday trades within a rolling five-day period before being labeled as After that, the Pattern Day Trader rules apply, and an account balance of at least $20,000 must be maintained in order to operate.
There is no such rule in stock index futures. You can execute as many round-turn trades as you want, as long as you meet the contract margin requirements. This is a significant advantage for short-term strategies such as scalping, momentum or breakout trading.
Level up your equity trading with Stock Index Futures
If you haven’t checked out Equity Index Futures yet, a great place to start is with our FREE guide futures for stock traders. Designed for curious-minded stock traders, this online guide breaks down the low margin, diversified markets and high liquidity of equity index futures. If you are trading the S&P 500, NASDAQ, DOW, or Russell 2000, futures for stock traders Must be read.
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