Recently, I’ve noticed that many friends who trade US stocks want to get into US stock index futures, but they always feel that this market is a bit complicated. Actually, as long as you understand a few core concepts, trading US stock futures isn’t as difficult as you might think.

First, the most basic one: US stock futures are essentially a contract. Both parties agree to trade an asset at a specific price at some time in the future. For example, if you buy an oil futures contract that expires in 3 months at $80, you are committing to purchase a certain quantity of oil at that price 3 months later. If the oil price rises to $90, your contract becomes more valuable.

US stock futures are linked to stock market indices. Because an index represents a basket of stocks, when you trade US stock futures, you’re effectively trading the value behind a calculation formula: index points multiplied by a multiplier. For instance, if you buy the Micro Nasdaq 100 futures (code MNQ) at 12,800 points, it’s equivalent to buying a basket of Nasdaq 100 component stocks, with a nominal value of 12,800 × $2 = $25,600.

Currently, the four most actively traded US stock futures in the US are based on the S&P 500, Nasdaq 100, Russell 2000, and the Dow Jones Industrial Average. Each index provides two contract specifications: mini contracts and micro contracts, and the investment amount of a micro contract is one-tenth of a mini contract. This is quite friendly for investors with different capital levels.

As for settlement, US stock futures use cash settlement. There’s no need for actual delivery of 500 or 100 stocks; profit and loss is calculated purely based on price changes. The expiration date is typically the third Friday of March, June, September, and December each year.

When choosing the right US stock futures contract, first you need to determine the market category you’re bullish or bearish on. If you’re bullish on the broader market, choose the S&P 500; if you’re bullish on technology stocks, choose the Nasdaq 100; if you’re bullish on small-cap stocks, choose the Russell 2000. Second, consider the contract size. If your funds are limited, micro contracts are usually more suitable. Third, pay attention to volatility. For example, the Nasdaq 100 is more volatile than the S&P 500, so you may need a smaller investment size.

US stock futures mainly have three uses. First is hedging. When the market falls, going short futures can offset losses in your portfolio. Second is speculation—buying or selling based on your view of the market direction. Third is locking in prices in advance. By paying only margin, you can control a position with a larger nominal value, which is helpful for investors who expect capital to enter the market in the future but want to get positioned early.

Calculating returns from US stock futures is straightforward: profit and loss equals the price change multiplied by the multiplier. For example, if you buy the S&P 500 futures (ES) at a buy price of 4000 and sell at 4050, you make a profit of 50 points. With a multiplier of 50 dollars, the profit is 50 × 50 = $2,500.

However, there are also things to watch out for with US stock futures. First, you need to pay initial margin. S&P 500 futures are approximately $12,320, and Nasdaq 100 futures are approximately $18,480. If losses cause your account balance to fall below the maintenance margin, you’ll need to add funds; otherwise, your broker will force a liquidation. Second, contracts have expiration dates. If you want to keep your position, you need to roll the contract. Third, US stock futures are high-leverage products. A 1% rise or fall in the index can translate into about a 16% gain or loss on the invested amount. Therefore, risk management must be strict—you must set a stop-loss.

If you feel that the contract size or margin requirements are too large, you can also consider Contracts for Difference (CFD). CFDs allow for a smaller minimum investment, leverage can be as high as 1:400, and there’s no expiration date, so no rolling is needed. But the trade-off is that the risk is higher.

In summary, trading US stock futures is suitable for investors with some experience to use for hedging and speculation. No matter what your purpose is, you must fully understand the leveraged nature and risks of US stock futures, and carefully choose the index, contract size, and a risk management plan.