Index Futures

Index futures

A futures contract on an index (such as a foreign stock index) in the futures market.

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index futures

Futures contracts on stock indexes such as the S&P 500. Index futures are settled in cash.

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Index Futures

What Does Index Futures Mean?

This term refers to a futures contract on a stock or financial index. For each index there may be a different multiple for determining the price of the futures contract.

Investopedia explains Index Futures

As an example, the S&P 500 Index is one of the most widely traded index futures contracts in the United States. Stock portfolio managers who want to hedge risk over a certain period of time often use S&P 500 futures for that purpose. By shorting these contracts, stock portfolio managers can protect themselves from the downside price risk of the broader market. However, there is a trade-off: When this hedging strategy is used, the manager's portfolio will not participate in any gains on the index; instead, the portfolio will lock in gains equivalent to the risk-free rate of interest. Alternatively, stock portfolio managers can use index futures to increase their exposure to movements in a particular index, essentially leveraging their portfolios.

Related Terms:
• Derivative
• Futures
• Futures Contract
• Hedge
• Index