Must-Read Guide for US Futures Trading: From Beginner to Expert

Why Are More and More Investors Focusing on US Futures?

Trading volume of US stock futures has been steadily increasing in recent years, especially after the launch of micro contracts (the “micro” version of US futures), which significantly lowered the entry barrier. This is no coincidence—US futures are essentially leverage tools that allow you to control larger market exposure with a small amount of capital.

Compared to directly buying US stocks, US futures have three main attractions: first, flexibility—trading nearly 24 hours a day (from Sunday 6 p.m. to Friday 5 p.m. Eastern Time); second, low cost—only requiring margin rather than full capital; third, a two-way profit mechanism—opportunities to profit whether the market goes up or down.

But the greater the attraction, the higher the risk. This is precisely why we need to understand US futures in depth.

The Core Logic of US Stock Futures: Representing a Basket of Stocks with a Single Number

Futures contracts are essentially agreements where both parties commit to buy or sell an asset at a predetermined price at a future date. US futures apply this logic to stock indices.

The key question is: indices are just a string of numbers, how are they tradable?

The answer lies in the multiplication mechanism. Take the Micro Nasdaq 100 futures (symbol MNQ) as an example: when the index is at 12,800 points:

• Index points: 12,800
• Multiplier: $2 per point
• Nominal value: 12,800 × 2 = $25,600

This means you are effectively holding an exposure equivalent to $25,600 in Nasdaq 100 component stocks, but only need to pay a margin far below this amount.

Different indices have vastly different multipliers. The S&P 500 futures (symbol ES) have a multiplier of $50 per point, much higher than MNQ’s $2 per point—that’s also why micro contracts (MES, $5 per point) are more popular among retail traders.

The Four Main Types of US Stock Futures Contracts

CME (Chicago Mercantile Exchange) offers the main US futures, ranked by trading activity:

Practical Trading Advice: Beginners should start with micro contracts because the risk per unit is more controllable. For example, a 50-point move in the index costs ES $2,500, while in MES it’s only $250—same market move, risk reduced by 10 times.

The Settlement Mechanism of US Futures: Why No Physical Delivery

Unlike commodity futures (like oil or gold), US futures use cash settlement.

The reason is simple: physically delivering a basket of 500 stocks (the S&P 500 components) is fundamentally impossible. Therefore, at expiration, only the final settlement price is used to calculate profit or loss, settled in cash.

Key Dates:

• Expiration date: the third Friday of March, June, September, December each year
• Settlement time: 9:30 a.m. Eastern Time (market open time on NYSE)
• Settlement price: based on the spot index at that moment

If you want to close your position before expiration (to maintain your position), you need to perform a “rollover”—close the near-month contract and open a longer-dated contract. Usually, this can be done with a single order.

Margin Requirements: Controlling Large Exposure with Limited Funds

Trading US futures requires paying two types of margin:

Initial margin is the amount needed to open a position; maintenance margin is the minimum account equity to keep the position open. If your account falls below the maintenance margin, the broker will force liquidation.

Leverage can be calculated as: ( Nominal Value ) ÷ ( Initial Margin )

For example, if the index is at 4,000 points in an ES contract:

• Nominal value = 4,000 × $50 = $200,000
• Leverage ratio = $200,000 ÷ $12,320 ≈ 16.2x

This means a 1% increase in the index results in approximately a 16.2% increase in your account value; similarly, a 1% decrease results in a comparable loss. Therefore, risk management is crucial.

The Three Main Uses of US Futures Trading

Hedging

Institutional investors often use US futures to hedge stock holdings. For example, a fund manager holding a large amount of tech stocks can short NQ futures to lock in downside risk—when the market declines, futures profits offset stock losses.

Speculative Profits

Most retail traders use futures for speculation. After predicting market direction, they leverage a small amount of margin to control a large position:

• Bullish on Nasdaq 100 → buy MNQ
• Bearish on S&P 500 → short MES

Leverage amplifies gains but also losses.

Locking in Entry Price in Advance

Suppose you expect to invest a large sum in three months but worry about market rising. You can buy US futures contracts now for the corresponding amount—“locking in” the current price. When funds arrive, close the futures position and buy the actual stocks.

Calculating US Futures Profit/Loss

The calculation is straightforward: Profit = (Sell Price - Buy Price) × Multiplier

Example (ES contract):

• Buy at: 4,000 points
• Sell at: 4,050 points
• Increase: 50 points
• Multiplier: $50/point
• Profit: 50 × $50 = $2,500

Conversely, if the price drops to 3,950 points, the loss is the same: $2,500.

US Futures vs CFDs: Which Is Better?

Many investors are torn between the two. The core differences are:

Choice Logic:

• Sufficient funds, seeking regulation: US futures
• Limited funds, seeking flexibility: CFD

Core Risk Management Elements in US Futures Trading

The leverage effect makes risk management vital:

( Strict Stop-Loss Discipline Set stop-loss levels before opening. For example, buy MES at 4,000 points, set stop-loss at 3,950 (50 points risk). Exit immediately if triggered to limit losses.

) Position Sizing Matches Capital Don’t over-leverage just because margin is small. Keep total exposure within 5-10% of your account equity to allow room for adjustments.

Beware Overnight Risks

US futures are open nearly 24 hours, but liquidity during Asian hours is lower, and spreads can widen. Major news (like Fed decisions) can cause gaps, rendering stop-loss orders ineffective.

Monitor Leverage Ratios

High leverage looks attractive but a 1% market move can mean a 16% change in your capital—small mistakes can lead to liquidation. A conservative approach is to control leverage actively, using micro contracts instead of standard ones.

Key Factors Influencing US Futures Prices

US futures are index derivatives, reflecting expectations of future stock performance. Main drivers include:

• Corporate Earnings Expectations: Better-than-expected earnings → index rises
• Economic Data: Faster GDP growth, lower unemployment → increased risk appetite
• Central Bank Policies: Interest rate decisions, QE → liquidity changes
• Geopolitical Events: Trade wars, regional conflicts → risk aversion
• Valuation Levels: High P/E ratios may trigger corrections on negative news

In practice, many traders monitor the spread between futures and the underlying spot index, as well as correlations with Asian markets (Hang Seng, Nikkei 225).

Rollover Strategies: How to Handle Contract Expiry

When your near-month contract (e.g., March) approaches expiry, you need to decide whether to close or rollover.

Rollover Steps:

1. Confirm sufficient liquidity in the longer-dated contract (e.g., June)
2. Place a “rollover” order—close the near-month and open the longer-dated contract simultaneously
3. Usually, the cost is minimal (1-2 points spread)

Risk Reminder: Execute rollover before the last trading day; as expiry nears, the spread between near and far contracts narrows, and costs can increase.

Common Mistakes for Beginners

Mistake 1: Viewing US futures as a quick way to get rich

High leverage can amplify gains but also losses. Many newbies relax after a few winning trades, only to suffer a big loss that resets their account.

Mistake 2: Ignoring liquidity

Not all contracts are actively traded. Focus on the front and second months of standard contracts (ES, NQ). Trading distant months may involve wider spreads and lower liquidity.

Mistake 3: Being unprepared for overnight gaps

Gaps during Asian hours are common. Using stop-loss orders can reduce risk, but relying solely on stops is dangerous—extreme volatility can cause slippage or stop loss failure.

Mistake 4: Ignoring major events like Fed meetings

Economic data releases or policy decisions often increase volatility and spreads. Beginners should reduce positions or stay on the sidelines during these times.

Conclusion: US Futures Are Not Gambling, They Are Tools

US futures trading is indeed high risk, but risks are manageable. The key points are:

1. Deep understanding of leverage—leverage does not equal risk; misuse without discipline does
2. Choose appropriate contracts—retail traders should prioritize micro contracts (MES, MNQ, M2K, MYM)
3. Strict risk control—use stop-loss, position sizing, and capital management as bottom lines
4. Continuous learning of market logic—understand index components, economic cycles, policy trends

Start with basic knowledge and paper trading, gradually building your trading system. US futures are powerful tools, but their power depends on the wisdom of the user.