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Friday, July 18, 2008

Trading ETF Futures Contracts

Exchange Traded Funds (ETFs) are regarded as the most successful trading instruments introduced in the last two decades. They are traded just like stocks, are tax efficient, are less expensive, and are a good way of diversifying portfolio. Chicago Mercantile Exchange (CME) has also introduced standardized futures contracts on ETF in 1997. CME offers electronic trading of 3 different ETF futures contracts.
  1. S&P 500 Depository Receipts (SPY) futures: Futures contract worth 100 SPY shares which track large-cap stocks.
  2. Nasdaq 100 Index Trading Stock (QQQQ) futures: Futures contract worth 200 QQQQ shares which track top 100 non-financial stocks of Nasdaq.
  3. iShares Russel 2000 index fund futures: Futures contracts worth 200 iShares Russel 2000 index which track small-cap stocks.
There are many advantages of trading ETF futures over ETF shares. ETF futures are standardized contracts with specific expiration or settlement dates and traders have option to cash settle or to own underlying ETF shares. With ETF futures it is easy to go short with out actually burrowing shares, they lower capital requirements, can be daily settled and are easy to leverage. Two other great futures advantages include diversification of portfolio and hedging against portfolio risk.

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posted by NobleTrading at 8:33 AM

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