How to trade US futures? An overview of the four main contract specifications, a must-read trading guide for beginners

If you’re trading US stocks, you’ve probably considered trying US futures contracts. But what exactly are US stock futures? How do you trade them? How much margin is required? This article will help you understand all the key information.

Why trade US futures? The three main purposes

Simply put, US stock futures are: contracts to buy or sell US stock indices at a predetermined price at a future date. It sounds complicated, but in reality, it’s just a game of opposing positions with the spot stocks.

Specifically, US stock futures represent the value of a basket of US stocks, calculated by this formula:

Index points × multiplier($) = Nominal value of the stock portfolio

For example, if you buy a micro Nasdaq 100 futures contract (symbol: MNQ) at 12,800 points, you’re essentially buying a portfolio of tech stocks that mirror the Nasdaq 100 index, with a nominal value of: 12,800 × $2 = $25,600.

So, what are US stock futures used for? The three core needs:

1. Hedging protection
If stocks fall, short futures positions can offset losses. This is a common method for institutional investors to protect their portfolios.

2. Speculative profit
Expect Nasdaq to rise? Buy NQ. Expect Dow to fall? Sell YM. Leverage amplifies gains, but of course, risks are also doubled.

3. Lock in future entry prices
If you plan to enter the market in three months but aren’t ready with funds, you can buy futures now to “reserve” today’s price, paying only a margin (usually a small fraction of the nominal value).

What types of US futures are there? The four main mainstream contracts explained

The most actively traded US stock futures in the US are these four:

Each index has two specifications: E-mini and Micro E-mini. Micro contracts are one-tenth the size of mini contracts.

Are you a beginner and confused? Remember this: Use MES, MNQ, M2K, MYM if you have limited funds; use ES, NQ, RTY, YM if you have sufficient capital.

How are US stock futures settled? Financial settlement is mainstream

What happens when a futures contract expires? There are two settlement methods:

• Physical delivery: common in commodity futures, where actual goods are delivered
• Financial settlement: used in US stock futures, based solely on cash, settling the difference in cash according to index price changes

Why do US stock futures use financial settlement? Because delivering 500 different stocks (the S&P 500) would be too complicated. It’s easier to settle cash based on index movements, calculating profit or loss accordingly.

Trading specifications and margin requirements

To open a position in US stock futures, you need to understand margin and trading rules. See this table:

Initial margin = the amount of funds needed to open a position. Maintenance margin = if your account balance falls below this, you’ll be required to top up; otherwise, your broker may forcibly close your position.

Practical tip: Keep your account balance at least 150% above the maintenance margin, especially during volatile markets.

Trading hours and expiry mechanisms for US stock futures

CME’s US stock futures trading hours are very friendly, aligning well with Asian markets, which is why traders worldwide love them.

How to choose the right US index futures contract?

Before trading, ask yourself three questions:

Step 1: Which market do you favor?

• Bullish on the overall market → buy ES or MES (S&P 500)
• Bullish on tech stocks → buy NQ or MNQ (Nasdaq 100)
• Bullish on small caps → buy RTY or M2K (Russell 2000)
• Bullish on blue chips → buy YM or MYM (Dow Jones)

Step 2: Choose the appropriate contract size
What is your trading scale? Want to trade a position with a nominal value of $20,000? Use MES, because a single ES contract (4,000 points × $50) is too expensive. Conversely, if your capital is larger, consider bigger contracts.

Step 3: Consider volatility
Nasdaq 100 is much more volatile than S&P 500, so you might need smaller contracts or better risk management. Dow Jones is the most stable, suitable for conservative traders.

How to calculate profit/loss in US stock futures?

The formula is simple: Price change in points × multiplier = profit/loss($)

For example, if you buy ES (S&P 500 mini):

• Entry: 4,000 points
• Exit: 4,050 points
• Points gained: 50
• Multiplier: $50
• Profit: 50 × $50 = $2,500

It’s straightforward. The same applies for losses—if the market moves against you, just reverse the calculation.

How leveraged are US stock futures? How big is the risk?

Leverage in US stock futures is determined by this formula:

Leverage = (Index points × multiplier) ÷ initial margin

Using S&P 500 futures as an example (index at 4,000 points, initial margin $12,320):
(4000 × $50) ÷ $12,320 ≈ 16.2x leverage

This means a 1% move in the index results in approximately a 16.2% change in your capital. When the market moves favorably, it’s exhilarating; when it moves against you, it can be devastating.

Three risk management essentials:

1. Set strict stop-losses: Never trade without a stop-loss.
2. Control your position size: Don’t go all-in; open only one or two contracts at most.
3. Review regularly: Make a plan before trading and review your trades afterward.

What to do when US stock futures are about to expire?

Suppose the March contract is approaching expiry on the third Friday, but you don’t want to close your position and want to hold on.

Rolling over — close your current contract and open a new one for the next quarter. Most trading platforms allow you to do this with a single order, avoiding the risk of having no position during the transition.

Since settlement is cash-based, failing to roll over won’t lead to physical stock delivery; instead, your profit or loss is settled automatically at the settlement price. However, you won’t be able to hold the position beyond expiry unless you roll over.

US stock futures vs. CFDs: which one to choose?

While US stock futures are powerful, they have drawbacks: large contract sizes, high margin requirements, and the need for periodic rollover.

In contrast, CFDs (Contracts for Difference) offer more flexibility:

Which to choose? Large funds and institutions prefer futures; small investors and retail traders tend to prefer CFDs.

Factors influencing US stock futures prices

Since futures are based on a basket of stocks, any factor affecting stocks will influence futures:

• Corporate earnings
• Macroeconomic growth expectations
• Central bank monetary policy
• Geopolitical events
• Overall market valuation levels

In simple terms: If stocks go up, futures go up; if stocks fall, futures fall. Futures tend to react more sensitively because of larger capital and no daily price limits.

Key tips for trading US stock futures

1. Choose active contracts: High liquidity means smaller spreads and faster execution.
2. Use micro contracts if you’re a beginner: MES, MNQ are more friendly, requiring less capital.
3. Practice risk management: This isn’t optional—it’s essential. High leverage means high risk.
4. Understand settlement rules: Know expiry dates, settlement methods, and close-out procedures thoroughly.
5. Practice with demo accounts: If you’re new, start with simulation trading to get a feel before risking real money.

Summary

US stock index futures are advanced trading tools with clear purposes (hedging, speculation, locking prices), but they carry real risks. Choosing the right contract specifications, understanding margin mechanisms, and executing disciplined stop-loss strategies are key to long-term success in the US futures market.

Whether mini or micro, S&P 500 or Nasdaq 100, the key is to select contracts based on your capital, risk tolerance, and trading experience. Happy trading!