NASDAQ futures

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NASDAQ futures are financial futures which launched on June 21, 1999. It is the financial contract futures that allow an investor to hedge with or speculate on the future value of various components of the NASDAQ market index.

Contents

Several futures instruments are derived from the Nasdaq composite index, these include the E-mini NASDAQ composite futures, the E-mini NASDAQ biology futures, the NASDAQ-100 futures, and the E-mini NASDAQ-100 futures.

NASDAQ derived futures

All of the NASDAQ derived future contracts are a product of the Chicago Mercantile Exchange (CME). [1] 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. [1]

Quotes

CME Group provides live feeds for Nasdaq Futures and these are published on various websites like Bloomberg.com, CNN Money, NasdaqFutures.org. [6]

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. [7]

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. [8] However studies reveal that hedging strategies still dominate speculation trade activity in every futures market studied. [9]

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. [10] Trading algorithms may be as exotic as biology theorems like neural network applied to financial market trading by Gang Dong of Rutgers University, [11] 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. [12] 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. [13] 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. [14] 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 Contracts.

See also

Related Research Articles

The Nasdaq Stock Market is an American stock exchange based in New York City. It is the most active stock trading venue in the US by volume, and ranked second on the list of stock exchanges by market capitalization of shares traded, behind the New York Stock Exchange. The exchange platform is owned by Nasdaq, Inc., which also owns the Nasdaq Nordic stock market network and several U.S.-based stock and options exchanges. According to a Gallup poll conducted in 2022, approximately 58% of American adults reported having money invested in the stock market, either through individual stocks, mutual funds, or retirement accounts.

<span class="mw-page-title-main">Futures contract</span> Standard forward contract

In finance, a futures contract is a standardized legal contract to buy or sell something at a predetermined price for delivery at a specified time in the future, between parties not yet known to each other. The asset transacted is usually a commodity or financial instrument. The predetermined price of the contract is known as the forward price. The specified time in the future when delivery and payment occur is known as the delivery date. Because it derives its value from the value of the underlying asset, a futures contract is a derivative.

<span class="mw-page-title-main">Futures exchange</span> Central financial exchange where people can trade standardized futures contracts

A futures exchange or futures market is a central financial exchange where people can trade standardized futures contracts defined by the exchange. Futures contracts are derivatives contracts to buy or sell specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future. Futures exchanges provide physical or electronic trading venues, details of standardized contracts, market and price data, clearing houses, exchange self-regulations, margin mechanisms, settlement procedures, delivery times, delivery procedures and other services to foster trading in futures contracts. Futures exchanges can be organized as non-profit member-owned organizations or as for-profit organizations. Futures exchanges can be integrated under the same brand name or organization with other types of exchanges, such as stock markets, options markets, and bond markets. Non-profit member-owned futures exchanges benefit their members, who earn commissions and revenue acting as brokers or market makers. For-profit futures exchanges earn most of their revenue from trading and clearing fees.

<span class="mw-page-title-main">Chicago Mercantile Exchange</span> Financial and commodity derivative exchange located in Chicago, Illinois, United States

The Chicago Mercantile Exchange (CME) is a global derivatives marketplace based in Chicago and located at 20 S. Wacker Drive. The CME was founded in 1898 as the Chicago Butter and Egg Board, an agricultural commodities exchange. For most of its history, the exchange was in the then common form of a non-profit organization, owned by members of the exchange. The Merc demutualized in November 2000, went public in December 2002, and merged with the Chicago Board of Trade in July 2007 to become a designated contract market of the CME Group Inc., which operates both markets. The chairman and chief executive officer of CME Group is Terrence A. Duffy, Bryan Durkin is president. On August 18, 2008, shareholders approved a merger with the New York Mercantile Exchange (NYMEX) and COMEX. CME, CBOT, NYMEX, and COMEX are now markets owned by CME Group. After the merger, the value of the CME quadrupled in a two-year span, with a market cap of over $25 billion.

A currency future, also known as an FX future or a foreign exchange future, is a futures contract to exchange one currency for another at a specified date in the future at a price that is fixed on the purchase date; see Foreign exchange derivative. Typically, one of the currencies is the US dollar. The price of a future is then in terms of US dollars per unit of other currency. This can be different from the standard way of quoting in the spot foreign exchange markets. The trade unit of each contract is then a certain amount of other currency, for instance €125,000. Most contracts have physical delivery, so for those held at the end of the last trading day, actual payments are made in each currency. However, most contracts are closed out before that. Investors can close out the contract at any time prior to the contract's delivery date.

An interest rate future is a financial derivative with an interest-bearing instrument as the underlying asset. It is a particular type of interest rate derivative.

E-minis are futures contracts that represent a fraction of the value of standard futures. They are traded primarily on the Chicago Mercantile Exchange. As of April, 2011, CME lists 44 unique E-mini contracts, of which approximately 10 have average daily trading volumes of over 1,000 contracts.

E-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. The notional value of one contract is 50 times the value of the S&P 500 stock index; thus, for example, on June 20, 2018, the S&P 500 cash index closed at 2,767.32, making each E-mini contract a $138,366 bet.

Futures exchanges establish a minimum amount that the price of a commodity can fluctuate upward or downward. This minimum fluctuation is known as a tick or commodity tick. Hence, a tick is any fluctuation in the price of a security.

A 1256 Contract, as defined in section 1256 of the U.S. Internal Revenue Code, is any regulated futures contracts, foreign currency contracts, non-equity options, dealer equity options, and any dealer security futures contracts. For U.S. Federal income tax purposes, mark-to-market accounting is used for each 1256 contract as of the end of each tax year, and such contracts are treated as sold for its fair market value on the last business day of such taxable year.

The following outline is provided as an overview of and topical guide to finance:

<span class="mw-page-title-main">CME Group</span> American financial derivatives company

CME Group Inc., headquartered in Chicago, operates financial derivatives exchanges including the Chicago Mercantile Exchange, Chicago Board of Trade, New York Mercantile Exchange, and The Commodity Exchange. The company also owns 27% of S&P Dow Jones Indices. It is the world's largest operator of financial derivatives exchanges. Its exchanges are platforms for trading in agricultural products, currencies, energy, interest rates, metals, futures contracts, options, stock indexes, and cryptocurrencies futures.

High-frequency trading (HFT) is a type of algorithmic financial trading characterized by high speeds, high turnover rates, and high order-to-trade ratios that leverages high-frequency financial data and electronic trading tools. While there is no single definition of HFT, among its key attributes are highly sophisticated algorithms, co-location, and very short-term investment horizons. HFT can be viewed as a primary form of algorithmic trading in finance. Specifically, it is the use of sophisticated technological tools and computer algorithms to rapidly trade securities. HFT uses proprietary trading strategies carried out by computers to move in and out of positions in seconds or fractions of a second.

<span class="mw-page-title-main">2010 flash crash</span> U.S. stock market crash lasting 36 minutes in May 6, 2010

The May 6, 2010, flash crash, also known as the crash of 2:45 or simply the flash crash, was a United States trillion-dollar flash crash which started at 2:32 p.m. EDT and lasted for approximately 36 minutes.

An E-micro is a futures contract traded on the Chicago Mercantile Exchange (CME) Globex electronic trading platform, that represents an even smaller fraction of the value of the normal futures contracts than the corresponding E-mini.

In finance, a dividend future is an exchange-traded derivative contract that allows investors to take positions on future dividend payments. Dividend futures can be on a single company, a basket of companies, or on an Equity index. They settle on the amount of dividend paid by the company, the basket of companies, or the index during the period of the contract.

<span class="mw-page-title-main">Interactive Brokers</span> American financial services firm

Interactive Brokers LLC (IB) is an American multinational brokerage firm. It operates the largest electronic trading platform in the United States by number of daily average revenue trades. The company brokers stocks, options, futures, EFPs, futures options, forex, bonds, funds, and some cryptocurrencies.

Dow Futures are financial futures which allow an investor to hedge with or speculate on the future value of various components of the Dow Jones Industrial Average market index. The futures instruments are derived from the Dow Jones Industrial Average as E-mini Dow Futures.

S&P 500 Futures are financial futures which allow an investor to hedge with or speculate on the future value of various components of the S&P 500 Index market index. S&P 500 futures contracts were first introduced by the Chicago Mercantile Exchange in 1982. The CME added the e-mini option in 1997. The bundle of stocks in the S&P 500 is, per the name, composed of stocks of 500 large companies.

<span class="mw-page-title-main">Securities market participants (United States)</span>

Securities market participants in the United States include corporations and governments issuing securities, persons and corporations buying and selling a security, the broker-dealers and exchanges which facilitate such trading, banks which safe keep assets, and regulators who monitor the markets' activities. Investors buy and sell through broker-dealers and have their assets retained by either their executing broker-dealer, a custodian bank or a prime broker. These transactions take place in the environment of equity and equity options exchanges, regulated by the U.S. Securities and Exchange Commission (SEC), or derivative exchanges, regulated by the Commodity Futures Trading Commission (CFTC). For transactions involving stocks and bonds, transfer agents assure that the ownership in each transaction is properly assigned to and held on behalf of each investor.

References

  1. 1 2 3 "E-mini Nasdaq Composite Futures Contract Specs - CME Group".
  2. 1 2 3 4 http://www.cmegroup.com/wrappedpages/clearing/pbrates/performancebond.html?group=CME%20INDEX%20FUTURES&type=OutrightRates&h=2&reporttype=marginrate [ bare URL ]
  3. ↑ "E-mini Nasdaq-100 Biotechnology Index Futures Contract Specs - CME Group".
  4. ↑ http://www.cmegroup.com/trading/equity-index/us-index/nasdaq-100_contract_specifications.html [ bare URL ]
  5. ↑ "E-mini Nasdaq-100 Futures Contract Specs - CME Group".
  6. ↑ Nasdaq Futures https://nasdaqfutures.org
  7. ↑ https://www2.econ.iastate.edu/faculty/wisner/Basic%20Options%20&%20Hedging%20Principles/NCH47PrincipalsofHedging4cp.pdf [ bare URL PDF ]
  8. ↑ PRNewswire-First Call, January 5, 2009.
  9. ↑ Ciner, Cetin, Hedging or Speculation in Derivative Markets: The Case of Energy Futures Contracts, Applied Economics Letters, University of North Carolina (2009),
  10. ↑ The Associated Press, July 2, 2007.
  11. ↑ Empirical Test of Forecasting VIX Index an Probability in Trading Derivatives, Gang Nathan Dong, (Rutgers University 2007), https://ssrn.com/abstract=956148
  12. ↑ IRS Code, Section 1256(a)&(b) https://www.law.cornell.edu/uscode/text/26/1256-/ .
  13. ↑ "Topic No. 409 Capital Gains and Losses | Internal Revenue Service".
  14. ↑ Id., Section 1256(a)&(b)(1), https://www.law.cornell.edu/uscode/text/26/1256-/.
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