Recently, many friends who trade US stocks have asked me about US futures, and I found that there are indeed some doubts about this area. So I went ahead and put together a beginner’s guide to share my understanding of US futures with you.

First, let’s talk about the most basic concept. Futures contracts, put simply, are agreements in which both buy and sell parties agree to trade a certain asset at a price set today, at some future time. For a simple example, suppose you buy a crude oil futures contract at $80 today for delivery in 3 months—this means you’re committing to buy a certain quantity of oil at $80 in 3 months. If, by then, the oil price rises to $90, your contract becomes more valuable.

US futures are essentially futures contracts tied to US stock index(es). But since an index is just a number, what are the underlying assets? The key is that the index represents a basket of stocks. When you buy or sell US futures, you are effectively trading a calculated value of that stock portfolio: index level points multiplied by a multiplier equals the notional value. For example, if you buy the Micro Nasdaq 100 futures at 12,800 points (symbol MNQ), it’s equivalent to buying a basket of technology stocks, with a notional value of 12,800 × 2 USD, which equals $25,600.

As for settlement methods, US futures use cash settlement rather than physical delivery. That also makes sense—since the S&P 500 index includes 500 stocks, physical delivery would be too complicated. So at expiration, both sides simply calculate profit and loss based on price changes.

The most actively traded US futures contracts mainly come in four types. Ranked by trading volume, they are futures related to the S&P 500, Nasdaq 100, Russell 2000, and the Dow Jones Industrial Average. Each index has two contract tiers: mini contracts (E-mini) and micro contracts (Micro). The micro contracts require only one-tenth of the margin of the mini contracts. The S&P 500 futures codes are ES and MES; the Nasdaq 100 codes are NQ and MNQ; the Russell 2000 codes are RTY and M2K; and the Dow Jones codes are YM and MYM. All of them are traded on the CME.

When it comes to contract specifications, the initial margin requirements for these contracts differ a lot. For example, the S&P 500 ES requires $12,320, while MES only needs $1,232. The maintenance margin is $11,200 and $1,120, respectively. US futures trading hours are long: trading starts at 6:00 PM New York time every Sunday and remains open until 5:00 PM on Friday, with only a 1-hour pause from Monday to Thursday in between. All contracts are quarterly; they expire on the third Friday of March, June, September, and December, and settlement time is 9:30 AM New York time.

Choosing the right US futures contract is actually not difficult. First, look at which market you’re bullish on—whether it’s the overall broad market, tech stocks, or small-cap stocks. Second, choose the appropriate size. If you want to trade a $20,000 position, MES is more suitable than ES, because the notional value of a single ES contract is too high. Third, consider volatility. The Nasdaq 100 tends to be more volatile than the S&P 500, so you may need a smaller position.

US futures have three main uses. First is hedging: using futures’ two-way trading characteristics to protect your portfolio. When the market falls, shorting futures can generate profits to offset losses. Second is speculation: profiting from directional market moves. For example, if you’re bullish on US technology stocks, you can buy Nasdaq 100 futures. Third is locking in prices in advance: by paying only margin, you can control a larger notional value position, making it relatively flexible.

Calculating profit and loss is straightforward: just multiply the price change by the multiplier. For example, if you buy ES at 4,000 points and sell at 4,050 points, you gain 50 points. Multiply by the $50 multiplier to get a profit of $2,500.

In real trading, there are a few issues to keep in mind. When a contract is approaching expiration and you want to maintain your position, you need to close the old contract and open a new one—this is called rolling over. US futures prices are influenced by factors that affect all the underlying stocks, including company earnings, economic growth, and monetary policy. The leverage ratio can be calculated by dividing the notional value by the initial margin. For example, when the S&P 500 is at 4,000 points, the leverage is about 16.2x, meaning that a 1% rise or fall in the index corresponds to approximately a 16.2% gain or loss on your investment. This is why risk management is crucial—you must set strict stop-losses, because when you are short, losses can be unlimited.

If you think the margin requirements for US futures are too high, you can also consider contracts for difference (CFDs). CFDs allow a smaller minimum investment and initial deposit, and offer higher leverage (up to 1:400). They have no expiration date, so there’s no need to roll over, and you can trade on weekends. However, futures are more suitable for large institutions or experienced investors, while CFDs are more suitable for individuals and smaller investors.

Overall, trading US futures is suitable for hedging and speculation, but because of leverage, the risks are amplified as well. Before choosing, carefully consider the index selection, contract size, and risk management. Whether you choose US futures or CFDs, understanding the differences between them can help you find the tool that best fits you. If you want to practice actual trading, you can start with a demo account—many platforms provide simulated funds so you can experience trading with zero risk.