Stock Index Future

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Stock Index Future


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Introduction

A derivative Contract based on Future and Options

Contract which is based on a set of underlying

securities i.e. Index is called stock index future.

When trading take place in stock index future, it

means market participants are taking a view on the

way the index will move. By trading a index future or

option you buy and sell the entire stock market as a

single entity.


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Stock index future were introduced by Kansas

city board of Trade in 1982 have since gained

worldwide popularity.

The Rationale behind the introduction and use

of such future contract emerges out of the

logic of the market efficiency.


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Stock Index Futures, History I.

Trading began on February 24, 1982, when the Kansas City

Board of Trade introduced futures on the Value Line Index.

About two months later, the Chicago Mercantile Exchangeintroduced futures contracts on the S&P 500 index.

By 1986, the S&P 500 futures contract had become the

second most actively traded futures contract in the world,with over 19.5 million contracts traded in that year.

In May 1982, the NYSE Composite Index futures contract

began trading on the New York Futures Exchange, the NYFE.


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Stock Index Futures, History II.

In July 1984, the Chicago Board of Trade began trading futures

contracts on the Major Market Index (MMI).

Dow Jones and Company went to court to block itsattempts to trade futures on the Dow Jones Industrial

Average (DJIA)

But, in June 1997, Dow Jones and Company agreed to allow

DJIA options, futures, and options on futures to begin trading.

On October 6, 1997, futures on the DJIA began trading on the

Chicago Board of Trade.


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Stock Index futures are futures on stock market such

as the standard & poors 500 in the US. It is very

inconvenient to deliver the index, stock index futures

contracts are settled by a cash amount which is equalto the difference the contracted future price and the

final index value times multiplier that scales the

contract size.


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Stock Index futures are built on any market index.

The underlying instruments is the index point

movement.

Stock index and futures movements are matched by

compensatory cash flows. Futures contract are

available on many stock indices. In India, the BSE

Sensex and S&P Nifty are the popular indices on

which there are futures trading.


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Features

Transaction Cost

Diversification

Liquidity Leverage

Clearing House

Stock Index Future

Documents

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