Recently, many friends trading U.S. stocks have asked me about U.S. stock futures. To be honest, this stuff is a bit complicated at first, but once you understand the principles, it’s not that mysterious.

Let's start with the most basic concept. U.S. stock futures are essentially a contract where you agree with another party to buy or sell a basket of stocks at a certain price at a future date. For example, suppose the Nasdaq 100 index is currently at 12,800 points. You buy a mini Nasdaq 100 futures contract (code MNQ), which effectively locks in that price. If the index later rises to 13,000 points, you make a profit. Conversely, if it falls, you incur a loss.

At this point, many people will ask, what exactly is the underlying asset of U.S. stock futures? It’s actually calculated as: index points multiplied by a multiplier. For example, if you buy MNQ at 12,800 points with a multiplier of $2, then the notional value is $25,600. This way, even if you don’t actually buy 500 individual stocks, you can participate in the overall market’s rise and fall.

Regarding trading, the most active U.S. stock futures include four main types. S&P 500 (codes ES/MES), Nasdaq 100 (NQ/MNQ), Russell 2000 (RTY/M2K), and Dow Jones Industrial Average (YM/MYM). All are traded on the Chicago Mercantile Exchange (CME). Each index has two versions: mini contracts and micro contracts, with micro contracts requiring one-tenth of the margin of the mini, making them more friendly for retail traders.

As for settlement methods, U.S. stock futures are cash-settled rather than physically delivered. Why? Think about it—if you had to deliver 500 stocks of the S&P 500, the operational costs would be enormous. So, at expiration, settlement is simply based on cash differences according to the price change.

Margin is a critical point. Before trading U.S. stock futures, you need to deposit an initial margin. This isn’t a fee but a security deposit for trading. For example, the initial margin for the S&P 500 futures (ES) is $12,320. If your losses cause your account to fall below the maintenance margin, your broker will liquidate your position. So risk management is really important.

How high is the leverage in U.S. stock futures? Taking the S&P 500 at around 4,000 points with an initial margin of $12,320, the leverage is roughly 16 times. This means a 1% move in the index could result in about a 16% profit or loss on your investment. That’s why some say futures are a double-edged sword.

In terms of usage, U.S. stock futures are mainly used for three purposes. First, hedging—when the market declines, short futures can offset losses in your spot portfolio. Second, speculation—predicting the index’s direction and betting accordingly. Third, price locking—if you expect to have a capital inflow in the future, you can lock in today’s entry point with futures.

Calculating profits is simple. Suppose you buy ES at 4,000 points and sell at 4,050 points, earning 50 points. Since the multiplier for ES is $50, the profit is 50 times $50, which equals $2,500.

Here are some additional practical details. U.S. stock futures are quarterly contracts, expiring on the third Friday of March, June, September, and December. Trading hours are from 6 p.m. on Sunday to 5 p.m. on Friday, basically 24-hour trading. If a contract is approaching expiration but you want to maintain your position, you need to roll over—close the old contract and open a new one.

Finally, what influences U.S. stock futures prices? Since they represent a basket of stocks, all factors affecting stocks will have an impact, including corporate earnings, economic growth, central bank policies, geopolitical events, and more. So, trading U.S. stock futures is essentially betting on the overall trend of the U.S. stock market.

If you find the margin requirements still too high or the contract sizes too large, there’s another option called Contracts for Difference (CFD). CFDs offer higher leverage, lower minimum investments, and no expiration date, and don’t require rollover. But the trade-off is higher risk. Which to choose depends on your situation and risk tolerance.

In summary, U.S. stock futures are powerful tools but come with high risks. Proper stop-loss strategies, position control, and understanding leverage are key to successful trading in futures.