Index Futures

Definition

Index futures are futures contracts based on stock market indices such as the S&P 500, NASDAQ 100, and Hang Seng Index. Investors trade these contracts to predict the price of the index at a specific future date.

Origin

The origin of index futures dates back to the 1980s when there was a growing demand for risk management tools in financial markets. In 1982, the Kansas City Board of Trade introduced the first stock index futures contract, marking the birth of index futures.

Categories and Features

Index futures are mainly divided into stock index futures and commodity index futures. Stock index futures are based on stock market indices, while commodity index futures are based on commodity market indices. Stock index futures are characterized by high liquidity and significant leverage, making them suitable for short-term speculation and risk hedging. Commodity index futures are often used for long-term investment and asset allocation.

Case Studies

A typical case is during the 2008 financial crisis when many investors used S&P 500 index futures to hedge against the decline in the stock market. Another example is during the COVID-19 outbreak in 2020, where investors used NASDAQ 100 index futures to capture the upward trend in technology stocks.

Common Issues

Common issues investors face when using index futures include losses due to incorrect market trend predictions and risks from improper leverage use. Investors should thoroughly understand market dynamics and use leverage wisely.