Index Futures

An index future is a cash-settled futures contract on an underlying index. Futures traders – hedgers or speculators – can buy (i.e. go long) or sell (go short) the index by depositing a margin (a percentage of the full contract value) and entering into a contract to pay or receive the index value at a pre-determined future date –without having to own the index’s underlying constituents. If the index at futures expiry has risen, the long side will realise a profit and a loss if it has fallen. And vice versa for sellers. Because only an initial margin is required to be deposited, index futures offer leveraged exposure.