Index Futures

What are 'Index Futures'

Index futures are a futures contracts on a stock or financial index. For each index there may be a different multiple for determining the price of the futures contract.

BREAKING DOWN 'Index Futures'

For example, the S&P 500 Index is one of the most widely traded index futures contracts in the U.S. Stock portfolio managers who want to hedge risk over a certain period of time often use S&P 500 futures to do so. By shorting these contracts, stock portfolio managers can protect themselves from the downside price risk of the broader market. However, by using this hedging strategy, if perfectly done, the manager's portfolio will not participate in any gains on the index; instead, the portfolio will lock in gains equivalent to the risk-free rate of interest.

Alternatively, stock portfolio managers can use index futures to increase their exposure to movements in a particular index, essentially leveraging their portfolios.

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RELATED FAQS
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    Every morning before North American stock exchanges begin trading, TV programs and websites providing financial information ... Read Answer >>
  2. How are futures used to hedge a position?

    Futures contracts are one of the most common derivatives used to hedge risk. A futures contract is as an arrangement between ... Read Answer >>
  3. How do S&P 500 futures work?

    Learn about the mechanics of S&P 500 futures contracts, a type of stock index future introduced by the Chicago Mercantile ... Read Answer >>
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    Learn what differences exist between futures and options contracts and how each can be used to hedge against investment risk ... Read Answer >>
  5. What types of items can you buy futures for?

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  6. How is fair value calculated in the futures market?

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