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What are Stock Index Futures?
Stock Index Futures are a type of derivative, because its value is derived from some other underlying asset, ie. the Stock Index. These assets are traded via contracts, in which traders speculate on future price by either taking long or short positions (buying or selling) which are then offset later by the opposite position completing the transaction.
What hardware/software is required?
The most important piece of hardware is strong computer with sufficient memory due to the demands of the software. You will also need trading software with live data feeds, I use eSignal and highly recommend it but other types of trading platforms will suffice. An account with a Futures Broker will also be needed.
How much start up capital is required?
Futures Contracts are traded on margin so the minimum requirement varies depending on the asset, volatility, price and leverage. Currently for Stock Index Futures such as the Nasdaq, the initial margin required is $15,000.00 USD. However, Futures Brokers offer leverage so that amount can be adjusted. That said, traders need to provide themselves ‘cushion’ for drawdowns and volatility.
How do you calculate P/L?
Profit and Loss is calculated by taking the Ticks (Index Points), dividing them by the minimum Tick Size (.25 Index Points), then multiplying by the minimum Tick Value ($5.00 – NQ), multiplied by Contract Size (Volume). For example, if we captured 100 Index Points today, the equation would be as follows: (100/.25*$5.00) * (#ofContracts) = P/L.
