What Are S&P 500 Futures?
S&P 500 futures are a derivative of the S&P 500 Index, a benchmark U.S. stock measure that is based on the share prices of 500 U.S. companies with large market capitalization. Like with futures contracts for commodities such as crude oil, the S&P 500 futures allow an investor to trade on a future date, with a price locked in today. From early March 2021 to early March 2022, S&P 500 futures and the S&P 500 Index had a correlation coefficient of 0.599, which indicated that they tracked each other most of the time.
As a Stock Market Indicator
Investors and analysts track the S&P 500 futures as a gauge of performance on the U.S. stock market after-hours because the S&P 500 Index functions only during normal trading hours on weekdays. While the S&P 500 Index is based on the cash price of stocks being traded within the benchmark, the S&P 500 futures reflects expectations of the future value of the index, which makes it a leading indicator for the U.S. stock market outside normal trading hours.
As a Form of Investment
Investors and analysts tend to monitor S&P 500 futures closely after the market’s close to find clues on where the direction of the stock market might be headed when trading resumes the following day, especially during times of volatility, and they can implement trades that complement their strategy, such as hedging. A positive return for futures might indicate a higher opening from the previous close for the market, and conversely, a negative return might indicate a lower opening. Futures are widely followed during times of news events that might affect investor sentiment. A strong quarterly earnings report from Apple (Nasdaq: AAPL) released after the end of normal trading hours or an economic indicator pointing to strong growth released prior to the stock market's start of trading might push futures higher.
If, in the morning, futures are trading much higher than the cash S&P 500, institutional investors might sell the futures and buy the underlying stocks, giving stocks a boost at the market's open. If, on the other hand, futures aren't trading much higher than the S&P 500's close, stocks can go down.
How Can I Invest in S&P 500 Futures?
The most popular way for individual and institutional investors alike to invest in S&P 500 futures is through the CME Group’s E-mini S&P 500 futures, which trades under the ticker symbol ES on the futures and options trading platform CME Globex. Smaller investors may have to open a special margins or futures account to trade. The E-mini is one fifth the size of standard S&P futures contracts, which are mostly used by institutional investors.
There is also a futures contract related to the tracking of the volatility of the market, and that is the S&P 500 VIX Mid-Term Futures Index, which measures the return of a daily rolling long position in the 4th, 5th, 6th and 7th-month VIX futures contracts.
In addition, there are options available for trading on the E-mini S&P 500.
How Are S&P 500 Futures Calculated?
The contract unit for the E-mini S&P 500 is $50 times the value of the S&P 500 Index. For example, if the underlying S&P 500 Index were trading at the 4,000-point level, the E-mini’s contract would be $200,000. There are four quarterly contracts—March, June, September, and December—and they are listed for nine consecutive quarters and three additional December contract months.
What Are Trading Hours for S&P 500 Futures?
The E-mini S&P 500 futures trades from Sunday, starting at 6 p.m. ET, until Friday, ending at 5 p.m. There is a maintenance period each day from Monday through Thursday between 5 and 6 p.m. Its nearly 24 hours of trading give global investors access to the futures during much of the work week. Trading on quarterly contracts ends at 9:30 a.m. ET on the third Friday of the contract month.
Frequently Asked Questions (FAQ)
The following are answers to some of the most common questions investors ask about S&P 500 futures.
What Is the Difference Between the S&P 500 Index and S&P 500 Futures?
The S&P 500 Index is based on 500 companies whose combined market capitalization accounts for about 80 percent of the total value of the U.S. stock market, while S&P 500 futures is a derivative based on the underlying value of the benchmark.
What Is the Ideal Time for Trading S&P 500 Futures?
A couple of hours before the market opens at 9:30 a.m. during the weekdays might be the ideal time for trading as this is when trading tends to be the most active, giving investors time to adjust to events that transpired overnight and to account for what might happen prior to the start of trading.
Why Are S&P 500 Futures Widely Followed?
Outside normal trading hours, investors look for clues about how the market might perform when trading resumes the following business day by monitoring S&P 500 futures, especially during times of volatility. Investors also can trade S&P 500 futures as a hedge against the index as part of a hedging strategy.