Why Add ES Futures to Your Portfolio
Have you ever heard of ES futures, or as they are otherwise known: e-mini futures? These futures are very popular among traders, and we suggest you consider adding them to your portfolio. Why? Because these futures track the S&P 500 Index, which itself is among the most stable and also best performing stock indices in the world. By adding emini or as they are sometimes called “e and s futures” to your holdings, you will be able to instantly diversify your stock portfolio.
Diversification is essential for investors. Simply put, you can never be sure that some type of down turn won’t hit a company or industry. Let’s consider an example. It was only a few years ago that the entire oil industry looked like a hot buy. It looked like it would continue to enjoy strong gains in the years ahead. Recently, however, oil prices have plummeted and oil companies like Exxon have sunk. Many analysts are now worried that smaller energy companies that rely on more expensive extraction methods, like fracking, will go belly up. In fact, bankruptcies have sky-rocketed over the past months. As a result, a lot of investors have lost a lot of money.
What’s the point of all of this? As an investor you should never over-expose yourself to a single company or industry. Don’t do it even if you happen to have a high expertise in the field. If all of your money was invested in oil stocks, you’d almost certainly be hurting right now. That’s why you have to diversify. Diversification, however, can be difficult. Every time you make an investment, you need to do your research. This means examining multiple individual companies and industries.
Another way to diversify your portfolio while reducing the hassle of having to examine individual companies is to add ES trading futures. Since these futures are based on the S&P Index, which has 500 companies listed in it at any given time, the futures themselves are already diversified.
The S&P 500
The S&P 500 is a collection of the largest publicly traded American companies in the world. The index is developed and designed to be diversified, not relying too much on any single industry or company. This means that by picking up ES futures, you’ll be diversifying. So if you need to diversify your portfolio and you don’t want to have to go through the trouble of building your own list of stocks, just invest in e and s trading futures.
Looking to diversify but don’t want to invest in American companies? There are many other options out there, such as FTSE futures. The FTSE trading index is composed of companies in the United Kingdom rather than the United States. Besides the FTSE index and related futures, there are also a variety of other futures for different stock market indices around the world.
How do futures work?
Futures are among the more complex and difficult to understand financial instruments. For newer investors, they can be quite intimidating. With time and effort, however, you’ll be able to figure them out. Working with them for an extended period of time is perhaps the best way to learn.
We can get you started, however, with a relevant example. Futures are contracts in which a buyer and seller exchange money in the present, but the goods are not delivered until a future point in time, hence the name. Wondering why anyone would enter into such a contract? Let’s go back to the oil industry so we can see how futures work in the real world.
Example of Futures
Let’s say a small gasoline refining company in Texas, say Houston TX Gasoline, needs to raise funds in order to keep its operations going. Meanwhile, a large gas station chain, say Acme QuickStops, needs to ensure a steady supply of gasoline. One option would be for Acme to enter into a futures contract with Houston TX Gasoline. Houston TX would agree to deliver the gasoline, say six months in the future, and would receive payment, with prices already agreed upon, in the present. This way, the oil refiner would be able to get money right now, while the gas station chain would be able to ensure delivery of gasoline.
This injects speculation for both the buyer and seller because they have to agree on prices. If the buyer pays say $2 dollars per gallon of gasoline, but prices in the six months before delivery jump to $3 dollars a gallon, the buyer will save one dollar per gallon.
These days, companies don’t necessarily enter into these types of agreements. As a trader, you can turn to a financial brokerage firm who can design a contract that will work in the same way. The parties involved won’t settle the contract with the delivery of any product, such as oil or gasoline. Instead, it is settled in cash with both parties agreeing to pay the difference depending on whether prices rise or fall.