Recently, many friends have asked me about U.S. stock futures, and I realized that many people are still quite unfamiliar with this area. Actually, if you're already trading U.S. stocks or want to hedge risks and look for speculative opportunities, it's worth understanding this well.

Let's start with the most basic concept. U.S. stock futures, simply put, are contracts where both parties agree to buy or sell an asset at a predetermined price at a future date. To illustrate with oil—if you buy a three-month futures contract for oil at $80, you're committing to buy a certain amount of oil at that price in three months. If the oil price rises to $90 by then, you make a profit.

U.S. stock futures are linked to U.S. stock indices, such as the S&P 500, Nasdaq 100, and others. Since indices are just numbers, the futures represent a basket of stocks' combined value. The calculation is straightforward: index points multiplied by a multiplier equals the nominal value of the investment. For example, if you buy micro Nasdaq 100 futures at 12,800 points (symbol MNQ), that’s effectively 12,800 x $2 = $25,600 in nominal value for the Nasdaq 100 component stock basket.

Currently, the most actively traded U.S. stock futures include four main types, based on the S&P 500, Nasdaq 100, Russell 2000, and Dow Jones Industrial Average. Each of these indices has "mini" and "micro" contract versions, with micro contracts being one-tenth the size of mini contracts, which is friendly for individual investors with smaller capital.

Regarding settlement methods, U.S. stock futures use cash settlement rather than physical delivery. Why? Because you simply can't physically deliver 500 different stocks. So, at expiration, the exchange calculates your profit or loss based on the change in the contract price, settled in cash.

As for margin, this is a part that many beginners tend to overlook. Before trading, you need to deposit an initial margin, which is usually only a small fraction of the actual underlying asset value. For example, when the S&P 500 futures are at 4,000 points, the initial margin might be $12,320, but the nominal value is around $200k. This demonstrates leverage—the 1% move in the index can translate into about 16.2% profit or loss on the invested amount. Of course, this also amplifies risk. If your account balance falls below the maintenance margin, your broker will force a liquidation, so risk management is especially important.

U.S. stock futures are traded from Monday to Friday, from 5 p.m. to 5 p.m. Eastern Time (with a weekend break), essentially 24-hour rolling trading that overlaps with Asian market hours. All contracts expire on the third Friday of March, June, September, and December. At expiration, you must close or roll over your position; otherwise, gains or losses are realized based on the final settlement price.

How to choose the right U.S. stock futures contract? First, determine whether you're bullish or bearish on the market—whether it's the overall market, tech stocks, or small caps. Second, select contract size based on your capital—don't blindly choose the largest. Third, consider volatility; Nasdaq 100 tends to be more volatile than the S&P 500, so position management needs to be more cautious.

U.S. stock futures mainly serve three purposes. First is hedging—using short positions to protect your portfolio when the market declines, offsetting losses. Second is speculation—profiting from market direction predictions, with leverage amplifying gains but also risks. Third is locking in future entry prices—useful for those expecting future capital inflows but wanting to position early during market dips.

Calculating profit and loss is quite straightforward. When you buy, if the index rises, you profit; if you sell, and the index falls, you profit. Profit = price change (points) x multiplier. For example, buying at 4,000 and selling at 4,050 on ES futures yields a profit of 50 points x $50 = $2,500.

A few practical details to note: as expiration approaches, if you want to maintain your position, you need to close the old contract and open a new one—this is called rolling over. The factors influencing futures prices are essentially all the factors affecting stock prices—company earnings, economic growth, monetary policy, geopolitical events, etc. As mentioned earlier, leverage risk is significant—U.S. stock futures can go up to about 20x leverage, meaning small fluctuations can cause large losses, so strict stop-loss discipline is essential.

If you find the margin requirements or contract sizes too high, there's an alternative: Contracts for Difference (CFD). CFDs allow smaller minimum investments and deposits, with higher leverage (up to 1:400), and no expiration date—you can close positions anytime without rolling over. The downside is that CFDs often have overnight fees and can be traded over the weekend. Overall, U.S. stock futures are more suitable for large institutions or experienced traders, while CFDs are friendlier for individual and small-scale investors.

In summary, U.S. stock futures are high-risk, high-leverage tools mainly used for hedging and speculation. Whatever your goal, carefully choose the underlying index, contract size, and position size, and establish strict risk management. Understanding the difference between futures and CFDs can help you select the most suitable trading tools for your needs.