From the March 01, 2010 issue of Futures Magazine • Subscribe!

Equity indexes: A guide for beginners

There was life before futures and options on equity indexes, but it’s a little hard to recall. When the Kansas City Board of Trade and the Chicago Mercantile Exchange rolled out the Value Line and S&P 500 contracts in the early 1980s, the market changed, but it truly transformed when the E-mini contracts came on the scene in the late 1990s. The minis gave individual investors access to a market that was previously pretty much closed to them.

In the Futures Industry Association’s 1998 Annual Volume Survey - Equities Saved the Year, author Galen Burghardt points out that had equity index volume not grown by 40% that year, total industry volume would have been off substantially. In 1998, 373 million equity index contracts were traded. Contrast that with the 2009 volume of 5,688 million equity index contracts (see “Emerging market”).

For the last half dozen years, the equity index sector has led all others, both domestically and internationally, generating some 37.2% of 2009 volume (see “Big dog”).

Today, individual and institutional investors have a plethora of choices when it comes to using equity index derivatives to manage risk or take a speculative position. They measure broad market exposure, the largest markets, small caps, mid-caps, and particular sectors by country, region or globally.

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