Trading stock index futures

A stock index is a basket of stocks representing a whole stock market, such as the Dow Jones Industrial Average or the Nikkei in Japan. So the index tends to be less volatile than its individual stocks, typically trading in a .5-2% range per day, perhaps a 3-5% range per week, 8-10% per month, and 20% per year.

Unlike currencies, stock indices have an inherent trend, like stocks themselves, to rise. This is because their underlying value in a given currency will rise as inflation devalues that currency.  It follows that this trend will strengthen with rising inflation.

So that's two reasons why I like them as a futures trader : they're not too volatile, and the odds favour a rise over time.

Here's an example of a stock index order:

Sell four Dec (pronounced "deck") Nikkei at 10,750 stop oco moc.

This means "Sell four December Nikkei contracts on stop at 10,750 order cancels order at market on close".

"On stop" means you want the market to rise, but this is a stop loss order to limit your losses in case it falls. So you're telling the broker to sell four contracts if the market trades at or below 10,750. This means he must sell once the market has traded at 10,750 at whatever price he can get, which may well be lower than 10,750. "oco moc" means "if the market doesn't trade down to 10,750, sell the four contracts at the best price you can get during the last three minutes of today's trading."

So what this order would normally mean is : "I'm long 4 contracts (i.e. I have bought 4 contracts). I think the market's going up today, and I'm planning to take my profit by selling these 4 contracts at the end of the day. In the meantime, just in case I'm wrong, please close out my position if the market falls to 10,750."

 

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