How Stock Index Futures Work
Typically, stock index futures are traded with the help of a futures broker, who facilitates the trade on both buy and sell orders. Just like traditional stock market securities trading, “buy” positions let investors profit from a rising stock market while “sell” orders enable investors to benefit from a declining stock market.
The National Futures Association is a good place to vet any potential brokers you’re considering to help you invest in stock index futures. It’s vital to check fees linked to futures trading, complaints lodged against brokers, and their track records in generating clean, fair stock index futures trades. While traders like the prospect of cashing in on big investment returns, with little money down, there are risks because investors can also bet too much on future market outcomes.
Pros and Cons of Stock Index Futures
- Ability to speculate on future prices without having to own the index covered by the futures
- Could potentially make a large amount of money with little capital
- Leverage can cause investors to lose their entire investment if the trade goes south
- Cash is required in margin accounts to fulfill potential margin calls
Trading Stock Index Futures
Online stock brokerages permit futures trading if you’re approved for a margin and options privileges in your account.
You can also consider stock index exchange-traded funds (ETFs), which offer access to stock futures without the relatively high risk of standalone stock market index vehicles.
If you’re determined to invest in stock index futures, consult with an investment advisor or another experienced financial professional before inking any deals. You’ll benefit from objective investment advice that may help steer you toward more measured and responsible investment decisions.