SPX futures are simply S&P 500 futures, but sometimes traders like to simply use the term SPX, rather than S&P 500. Let’s not beat around the bush here, S&P 500 takes an extra second or so to type out or even say. For this reason, SPX is a frequently used symbol to refer to the S&P 500 index.
Not sure what the SPX 500 index is? It’s a collection of the 500 largest and most important publicly traded companies in the United States. There are also large companies, companies even larger than many S&P 500 companies, that are privately held, such as Cargill. Since there are no stocks, however, there is no way to account for them in the index. Anyways, the SPX index is one of the best single indicators of the overall economy and performance of American markets and the economy as a whole. This is because the index is very diversified and represents a large number of companies.
What are SPX 500 “Futures”?
Getting back to the SPX 500 future, let’s focus on the last term “futures”. These contracts can be a bit more difficult for newer investors to understand. Futures are contracts in which a buyer and seller come to terms now, and exchange money now, but the actual goods aren’t delivered until a future point in time.
An Example of a Futures Contract
Confused? Let’s use the example of rice, a common commodity that is often traded through future markets. Let’s say a rice farming company in Vietnam is in need of some funds in order to expand its operations. Meanwhile, a local food processor, let’s call them Lucknow Foods, is in need of a steady supply of rice so that it can continue to manufacture its popular Lucknow Rice Cakes. The two organizations could enter into a future’s contract. The rice farming company would agree to sell Lucknow its future crop of rice. They will agree upon a price based on current market conditions and future sentiments. The money is exchanged, but the rice isn’t delivered until the agreed upon date in the future.
This is how and where futures markets arose, more or less. They were primarily based around commodities in the early days. Now-a-days, traders can buy and sell just about anything on the futures market. Further, most futures are now settled in cash. This means you and your broker will simply pay each other a cash difference. If markets go the way you predict them to, your broker will pay you the cash difference. If you’re wrong, you’ll end up having to pay your broker the cash difference.
Even if you don’t trade in futures, you should keep an eye on an spx futures chart. This chart will help you determine what sentiments are for markets as a whole. Remember, the SPX is one of the most widely used and recognized indices in the whole world. If futures for the index are negative, this hints at an underlying skepticism in the markets themselves.
Investing in the S&P 500 through the futures market
A spx future is just one of many, many ways you can invest in the S&P 500. You can buy funds, like Vanguard funds pegged to the SPX, or you can simply buy stocks. You can also buy options and various other investments. Still, an spx future is a great way to invest in an entire index.
With an SPX future, you will be making a bet on whether the entire value of the S&P 500 will increase or decrease. If you want to invest in these futures, it’s best to hunt down some quotes to see what the futures contracts look like. More or less, these contracts will be in line with sentiments. For example, looking at live spx futures (as of May 21, 2016), we found that S&P futures were projecting a rise in the value. This suggests that people believe that the value of the index will be increasing through the near term.
SPX futures are available for purchase with a huge range of expiration dates. These days, investors can set prices out weeks in advance (1 month SPX futures are common) or even mere minutes! This allows for a ton of flexibility in investing through these futures. For example, if you believe markets are going to rise tomorrow with the release of U.S. federal economic data, you can invest in S&P futures and generate some returns!