NASDAQ futures
Encyclopedia
NASDAQ futures are investment instruments which allow an investor to hedge with or speculate on the future value of various components of the NASDAQ
market index.
NASDAQ composite futures, the E-mini NASDAQ biology futures, the NASDAQ-100 futures, and the E-mini NASDAQ-100 futures.
The NASDAQ is the largest electronically traded stock exchange in the world. The NASDAQ composite is a composite index of all securities traded on the NASDAQ exchange which has been continuously calculated since 1971. Futures contracts oblige the parties to buy and sell the derivative
at a predetermined price at a predetermined time.
Futures contracts are beneficial to investors because of the leverage
involved. While 100% of the cost is required to purchase stocks and their indexes (without borrowing on margin), only a fraction of five to fifteen percent the value of a futures contract is required to be deposited to gain control of the futures contract (called a performance bond
). Therefore, increases and decreases in the value of the futures contracts are a much greater percentage of the capital required to control futures than stocks either bought outright or on margin. Risk of loss and potential for profit are equally amplified through this leveraging.
(CME). They expire quarterly (March, June, September, and December), and are traded on the CME Globex exchange nearly 24 hours a day, from Sunday afternoon to Friday afternoon.
E-mini NASDAQ futures (ticker: QCN) contract's minimum tick is .50 index points = $10.00 While the performance bond requirements vary from broker to broker, the CME requires $4,000, and continuing equity of $3,200 to maintain the position.
E-mini NASAQ biotechnology futures (ticker: BIO) contract's minimum tick is .10 index points = $5.00 While the performance bond requirements vary from broker to broker, the CME requires $3,750, and continuing equity of $3000 to maintain the position.
NASDAQ-100 futures (ticker: ND) contract's minimum tick is .25 index points = $25.00 While the performance bond requirements vary from broker to broker, the CME requires $17,500, and continuing equity of $14,000 to maintain the position.
E-mini NASDAQ-100 futures (ticker: NQ) contract's minimum tick is .25 index points = $5.00 While the performance bond requirements vary from broker to broker, the CME requires $3,500, and continuing equity of $2,800 to maintain the position.
Futures are also widely used to speculate trading profits. Futures trading is skyrocketing – CME's E-mini contracts averaged 3.5 million contracts a day in 2008, a 37 percent yearly increase in volume, while equity volume increased only 2 percent for the same period of time. However studies reveal that hedging strategies still dominate speculation trade activity in every futures market studied.
Investment in trading algorithms research (a mathematical rule set for futures trading entry, exit, and stop loss points often calculated and executed by computer) is phenomenal. Investment banking firm Goldman Sachs devotes more of its resources, tens of millions annually, to developing trading algorithms than it does on trade desk staffing. Trading algorithms may be as exotic as biology theorems like neutral network applied to financial market trading by Gang Dong of Rutgers University, or completely based on current market time/price analysis.
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NASDAQ
The NASDAQ Stock Market, also known as the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations". It is the second-largest stock exchange by market capitalization in the world, after the New York Stock Exchange. As of...
market index.
In General
Several futures instruments are derived from the NASDAQ composite index: the E-miniE-mini
E-minis are futures contracts traded primarily on the Chicago Mercantile Exchange's Globex electronic trading platform and on the New York Board of Trade, that represent a fraction of the value of normal futures contracts...
NASDAQ composite futures, the E-mini NASDAQ biology futures, the NASDAQ-100 futures, and the E-mini NASDAQ-100 futures.
The NASDAQ is the largest electronically traded stock exchange in the world. The NASDAQ composite is a composite index of all securities traded on the NASDAQ exchange which has been continuously calculated since 1971. Futures contracts oblige the parties to buy and sell the derivative
Derivative
In calculus, a branch of mathematics, the derivative is a measure of how a function changes as its input changes. Loosely speaking, a derivative can be thought of as how much one quantity is changing in response to changes in some other quantity; for example, the derivative of the position of a...
at a predetermined price at a predetermined time.
Futures contracts are beneficial to investors because of the leverage
Leverage (finance)
In finance, leverage is a general term for any technique to multiply gains and losses. Common ways to attain leverage are borrowing money, buying fixed assets and using derivatives. Important examples are:* A public corporation may leverage its equity by borrowing money...
involved. While 100% of the cost is required to purchase stocks and their indexes (without borrowing on margin), only a fraction of five to fifteen percent the value of a futures contract is required to be deposited to gain control of the futures contract (called a performance bond
Performance bond
A performance bond is a surety bond issued by an insurance company or a bank to guarantee satisfactory completion of a project by a contractor.A job requiring a payment & performance bond will usually require a bid bond, to bid the job...
). Therefore, increases and decreases in the value of the futures contracts are a much greater percentage of the capital required to control futures than stocks either bought outright or on margin. Risk of loss and potential for profit are equally amplified through this leveraging.
NASDAQ derived futures
All of the NASDAQ derived future contracts are a product of the Chicago Mercantile ExchangeChicago Mercantile Exchange
The Chicago Mercantile Exchange is an American financial and commodity derivative exchange based in Chicago. The CME was founded in 1898 as the Chicago Butter and Egg Board. Originally, the exchange was a non-profit organization...
(CME). They expire quarterly (March, June, September, and December), and are traded on the CME Globex exchange nearly 24 hours a day, from Sunday afternoon to Friday afternoon.
E-mini NASDAQ futures (ticker: QCN) contract's minimum tick is .50 index points = $10.00 While the performance bond requirements vary from broker to broker, the CME requires $4,000, and continuing equity of $3,200 to maintain the position.
E-mini NASAQ biotechnology futures (ticker: BIO) contract's minimum tick is .10 index points = $5.00 While the performance bond requirements vary from broker to broker, the CME requires $3,750, and continuing equity of $3000 to maintain the position.
NASDAQ-100 futures (ticker: ND) contract's minimum tick is .25 index points = $25.00 While the performance bond requirements vary from broker to broker, the CME requires $17,500, and continuing equity of $14,000 to maintain the position.
E-mini NASDAQ-100 futures (ticker: NQ) contract's minimum tick is .25 index points = $5.00 While the performance bond requirements vary from broker to broker, the CME requires $3,500, and continuing equity of $2,800 to maintain the position.
Trading strategies
Futures contracts are commonly used for hedge or speculative financial goals. Futures contracts are used to hedge, or offset investment risk by commodity owners (i.e., farmers), or portfolios with undesirable risk exposure offset by the futures position.Futures are also widely used to speculate trading profits. Futures trading is skyrocketing – CME's E-mini contracts averaged 3.5 million contracts a day in 2008, a 37 percent yearly increase in volume, while equity volume increased only 2 percent for the same period of time. However studies reveal that hedging strategies still dominate speculation trade activity in every futures market studied.
Investment in trading algorithms research (a mathematical rule set for futures trading entry, exit, and stop loss points often calculated and executed by computer) is phenomenal. Investment banking firm Goldman Sachs devotes more of its resources, tens of millions annually, to developing trading algorithms than it does on trade desk staffing. Trading algorithms may be as exotic as biology theorems like neutral network applied to financial market trading by Gang Dong of Rutgers University, or completely based on current market time/price analysis.
US tax advantages
In the United States broad-based index futures receive special tax treatment under the IRS 60/40 rule. Stocks held longer than one year qualify for favorable capital gains tax treatment, while stocks held one year or less are taxed at ordinary income. However, proceeds from index futures contracts traded in the short term are taxed 60 percent at the favorable capital gains rate, and only 40 percent as ordinary income. Also, losses on NASDAQ futures can be carried back up to 3 years, and tax reporting is significantly simpler, as they qualify as Section 1256 Contract1256 contract
A 1256 Contract is a term used by the Internal Revenue Service to denote any regulated futures contracts, foreign currency contracts, non-equity options , dealer equity options, dealer security futures contracts, and cash settled options A 1256 Contract is a term used by the Internal Revenue...
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See also
- E-mini S&PE-mini S&PE-Mini S&P, often abbreviated to "E-mini" and designated by the commodity ticker symbol ES, is a stock market index futures contract traded on the Chicago Mercantile Exchange's Globex electronic trading platform...
- Futures contractFutures contractIn finance, a futures contract is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today with delivery occurring at a specified future date, the delivery date. The contracts are traded on a futures exchange...
- Derivative (finance)Derivative (finance)A derivative instrument is a contract between two parties that specifies conditions—in particular, dates and the resulting values of the underlying variables—under which payments, or payoffs, are to be made between the parties.Under U.S...
- Algorithmic tradingAlgorithmic tradingIn electronic financial markets, algorithmic trading or automated trading, also known as algo trading, black-box trading or robo trading, is the use of electronic platforms for entering trading orders with an algorithm deciding on aspects of the order such as the timing, price, or quantity of the...
- 1256 Contract1256 contractA 1256 Contract is a term used by the Internal Revenue Service to denote any regulated futures contracts, foreign currency contracts, non-equity options , dealer equity options, dealer security futures contracts, and cash settled options A 1256 Contract is a term used by the Internal Revenue...