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You may be familiar with the term stock market futures, but what are they really?
And what do we mean exactly when we refer to the “global market?”
Any wise investor should take some time to learn about these terms.
What is The Global Market and
The term global market may be used in a few different contexts. At its most fundamental level, the “global market” refers to all economic trade on a global scale in aggregate. Global market is defined a the activity or buying or selling goods and services in all countries of the world. Global market can also mean the value of the goods and services sold on the global marketplace.
In the context of the stock market, global market refers to a composite of all global stock exchanges and indexes that track and measure market behavior.
What are the top Global market indexes
Major world indices list companies that demonstrate global leadership and have international reach with their products or services. Along with the Standard & Poor’s 500 and the Dow Jones, the Nasdaq Global Market and Russell 2000 are some of the major world indices.
For a comprehensive list of the major world markets, reference Yahoo Finance’s list of world indices, which is updated regularly. Reuters also provides a comprehensive overview of the top global market data.
Stock Market Futures: What are they and how do they work
In short, futures are financial contracts that obligate the buyer to purchase an asset or the seller to sell an asset at a predetermined future price. The asset class may range from a financial instrument to a physical commodity, such as gold, oil, or wheat.
Stock market futures refer to futures contracts that track a specific benchmark index like the S&P 500. They also called market futures or equity index futures. While commodity futures require delivery of the underlying goods (IE: corn, sugar, crude oil), market futures contracts get settled with cash or get rolled over.
How Do Market Futures Work and How are they Used?
Futures traders are not restricted to day trader and can buy, sell, or short sell a contract anytime the market is open. Traders also don’t need the $25,000 capital requirement for day trading stocks in the U.S.
Market futures don’t own any components of the index they track. Instead, market futures track the movement of the underlying equity index. In fact, they are often a lead indicator for markets and stocks and actually influence the index movements. Market futures are highly liquid and can be traded long or short. Traders can also short-sell without waiting to be filled on an up-tick. Portfolio managers often use market futures to hedge both long and short positions. For a brief primer on how stock futures are actually calculated, Investors Underground provides a useful overview.
A tick is the minimum price fluctuation a futures contract can make. Tick size varies based on the contract – the S&P 500 Emini moves in 0.25 increments – and how much each tick is worth is known as the tick value. So each tick represents a monetary gain or loss by the contract holder.
The Top Stock market futures you need to know about
Standard and Poor’s 500 Index is the “gold standard” benchmark index for traders and institutions. The S&P 500 provides two investment options: the original S&P large contract and the S&P E-mini, which trades at a fraction of the cost. The large contract trades on the exchange auction floor with the prefix SP, while the S&P E-mini trades under the symbol ES at one-fifth the cost of the former. The E-minis, introduced by the Chicago Mercantile Group, provide traders increased affordability, accessibility, liquidity, and better leverage.
The S&P E-minis trade up to two million contracts per day, making them the most widely traded futures contracts. Three of the other most popular future contracts are the Dow Jones E-minis (YM), the Nasdaq 100 index E Minis (NQ), and the Russell 2000 E-mini (ER).
The Impact of Governments in the Global Market
Governments influence the global market by advocating the commercial interests of their businesses and enterprises overseas. The Global Markets division of the U.S. government assists and advocates for U.S. businesses in international markets to foster U.S. economic prosperity.
Global Markets utilizes its network in over 70 countries and 100 U.S. locations to promote U.S exports, advance and protect U.S. commercial interests overseas, and attract foreign investment into the United States.
What You Need to Get started with Trading Stock Futures
Futures trades do require a broker, and the broker will charge a commission. That said, you typically only need $1,000+ to start trading futures, although it is advisable that you start with at least $3,500, and they do carry margin requirements.
Some of the top factors to keep in mind when picking a futures contract to trade are volume, margins, and movement. The S&P 500 E-Mini contracts are generally considered a good place to start for beginners in the futures market.