Futures are financial contracts obligating the buyer to purchase, or the seller to sell, an underlying asset at a predetermined price and date in the future. These contracts are standardized and traded on regulated exchanges, making them a popular choice for hedgers and speculators. Futures can be based on a variety of underlying assets, including commodities (like oil and gold), currencies, and financial indices.
For traders, futures offer the opportunity to profit from price movements without owning the underlying asset. They also come with built-in leverage, meaning traders can control large positions with a relatively small amount of capital. However, this leverage makes futures trading both highly rewarding and risky.
The Chicago Mercantile Exchange (CME) is one of the largest and most important futures markets in the world. It offers a wide range of futures and options contracts, including some of the most heavily traded financial instruments, like the E-mini S&P 500 (ES) and E-mini Nasdaq 100 (NQ) futures.
The CME operates as a centralized exchange, ensuring transparency, liquidity, and efficient price discovery. It also provides robust clearing services, which reduce counterparty risk for traders.
NQ futures are based on the Nasdaq 100 index, which comprises 100 of the largest non-financial companies listed on the Nasdaq Stock Market. These futures are particularly popular with traders looking to speculate on or hedge against movements in the technology sector, as tech companies dominate the Nasdaq 100.
ES futures track the S&P 500 index, which represents 500 large-cap companies across various sectors of the U.S. economy. ES futures are often seen as a benchmark for the overall health of the stock market and are widely used by both institutional and retail traders.
Relationship
While both NQ and ES futures track different indices, their price movements are often correlated due to the broader market dynamics. For instance, if positive economic data boosts investor confidence, both indices are likely to rise. However, the extent of their movements may differ.
Understanding the relationship between these instruments can provide valuable insights for managing risk and finding opportunities for trades. Because the two futures are often not perfectly aligned in price action, one future might be used to predict the movement of the other future that would be lagging behind. For example if ES just passed a major resistance level and gains large momentum as a result, the NQ will take some time to go along with this movement. In such a situation I might go long on NQ, which will subsequently follow the ES price action, making a nice trade.