Want to trade US stock futures? Understand these trading principles before you start.

What Exactly Are Futures Contracts?

Many investors trading US stocks want to venture into the futures market but find it confusing. Simply put, a futures contract is an agreement that stipulates the buyer and seller will complete a transaction at a predetermined price at a future date.

To illustrate in the simplest way: if you sign a crude oil futures contract now with a delivery date three months later at $80 per barrel, it means you commit to buying about 1,000 barrels of oil at $80/barrel in three months. If the oil price rises to $90, the right you secured at $80 increases in value, allowing you to profit from the price difference.

US stock futures are futures products based on US stock indices. Since an index is just a number, what exactly is the underlying asset behind the futures? The answer is—a basket of stocks. When you buy or sell US stock futures, you are actually trading the value represented by the following formula:

Index points × Contract multiplier = Actual trading amount

For example, buying a mini Nasdaq 100 futures contract (code MNQ) at 12,800 points means you are holding a portfolio of tech stocks valued at 12,800 × 2 USD = 25,600 USD.

How Are US Stock Futures Settled? Cash or Delivery?

When US stock futures expire, there are two settlement methods—physical delivery or cash settlement. Physical delivery involves actual transfer of assets (like oil, agricultural products, precious metals), while cash settlement involves transferring the difference based on price changes.

US stock futures use cash settlement. Imagine how complicated it would be to physically deliver the 500 stocks in the S&P 500 index, so exchanges simplify the process with cash settlement—at expiration, profits or losses are calculated based on the settlement price, without actual stock transfer.

The Four Most Active US Stock Futures Products

The most traded US stock futures products, in order, are: S&P 500 futures, Nasdaq 100 futures, Russell 2000 futures, and Dow Jones Industrial Average futures.

Each index offers two versions—E-mini and Micro E-mini contracts. Micro contracts are one-tenth the size of mini contracts, making them more suitable for retail investors just starting out.

Eight Key Contract Specifications You Must Know Before Trading

Important Reminder: Before trading, you need to deposit the initial margin with your broker. If your position incurs a loss, the loss amount will be deducted from your account. If your balance falls below the maintenance margin, you must top up funds immediately; otherwise, your broker will force liquidation.

Trading Hours and Key Features at a Glance

• 24/7 Trading: Opens at 6:00 PM NY time on Sunday and closes at 5:00 PM Friday, overlapping with Asian market hours; markets are closed on weekends.
• Expiration Schedule: All US stock futures expire on the third Friday of March, June, September, and December.
• Settlement Price: Final settlement price is determined at 9:30 AM NY time on expiration day (when NYSE opens).
• Position Closure: If not closed before expiration (by executing an opposite trade), profits or losses are settled at the final settlement price.

How to Choose the Right US Stock Futures for You?

Investors should pass three key steps:

Step 1: Lock in Market Direction—Choose S&P 500 if bullish on the overall market; pick Nasdaq 100 if optimistic about tech stocks; select Russell 2000 if bearish on large-cap stocks.

Step 2: Decide Contract Size—If you want to allocate a $20,000 position, avoid ES (which requires a $200,000 position per lot), opt for MES (which requires $20,000). Similarly, due to higher volatility, you might prefer MNQ to reduce risk exposure.

Step 3: Assess Volatility—Different indices have different volatility profiles. MNQ tends to fluctuate more than MES, so adjust your position size according to your risk tolerance.

The Three Main Uses of US Stock Futures

( Hedging Risks

Use US stock futures to hedge your spot portfolio. When the stock market declines, short futures can profit, offsetting losses in your physical holdings.

) Speculative Profits

Based on your market outlook, buy bullish or sell bearish futures. The most attractive feature is—futures come with leverage, allowing small capital to control large positions, amplifying profits but also risks.

Locking in Future Prices

By paying a margin (a small part of the actual asset value), you can “reserve” your entry price for the future. For example, if you expect a large inflow of funds in three months but don’t want to miss the current low prices, you can buy futures now to lock in today’s price.

Tip: Regardless of your purpose, always prefer contracts with high trading volume and liquidity to ensure smooth entry and exit.

How Are Futures Profits and Losses Calculated?

The calculation is straightforward—price change × contract multiplier = profit or loss.

Example (ES contract):

• Entry price: 4000 points
• Exit price: 4050 points
• Profit points: 50
• Multiplier: $50
• Profit: 50 × $50 = $2,500

Conversely, if the price drops 50 points, the loss is $2,500.

Advanced Practical Topics

What to do when a contract is about to expire?

If you want to keep your position, you need to close the current contract and open a new one with a later expiration—this is called “rollover,” usually done with a single order. Since US stock futures are cash-settled, rollover does not involve stock delivery; the settlement price directly determines profit or loss.

What factors influence US stock futures prices?

Because US stock futures represent the market value of a basket of stocks, any variable affecting stock prices will impact futures: corporate earnings, economic growth, central bank policies, geopolitical events, overall market valuation, etc.

How extreme is the leverage ratio?

Leverage ratio = Nominal trading amount ÷ Initial margin. For example, with the S&P 500 at 4000 points and $12,320 margin, the leverage is ###4000 × 50### ÷ 12,320 ≈ 16.2 times. This means a 1% move in the index results in a 16.2% change in your account—appealing but also magnifies losses.

( What is the core of risk management?

Discipline in setting stop-loss points is essential. Futures are leveraged products; short positions can theoretically incur unlimited losses, so it’s crucial to set and strictly adhere to stop-loss levels before opening a position.

US Stock Futures vs. US Stock CFDs—Which Is More Suitable for You?

US stock futures are suitable for hedging and speculation but have drawbacks—larger contract sizes, conservative leverage, high initial margin requirements, and periodic rollover needs.

CFDs (Contracts for Difference) address these shortcomings: lower investment thresholds, smaller initial deposits, no expiration date or rollover, and ability to close positions at any time. They are more friendly to retail traders and small investors.

Final Summary

The core of US stock futures trading focuses on hedging and speculation. Regardless of purpose, futures are high-risk assets—leverage can amplify gains but also wipe out your capital.

Therefore, before trading, carefully consider three key factors: the characteristics of the chosen index, position size, and robust risk management mechanisms.

While CFDs have similar profit/loss logic to futures, there are notable differences. Understanding these differences helps you select the right tool based on your conditions. Ready to make your mark in the US stock market? Use this knowledge map to clarify your strategy before taking action.