In the financial world, indexes track assets or stocks in an industry, while futures estimate their value sometime in the future. To trade in these, one must obtain index futures contracts, which involves one party agreeing to sell and another agreeing to buy a security at a certain price and amount on one day and to take delivery at a later date. Because of this differential in present versus future value, these futures contracts may serve an important function in one’s portfolio. Traders can utilize the “short” nature of a futures contract to hedge their bets against or supplement long-term changes in the market. Although people cannot invest directly in an index, they can buy securities in different market segments.
Many rely on indexes for investment purposes. Some of the most popular include Standard & Poor’s 500, Standard & Poor’s Global 100, and Morgan Stanley Capital International World. While those three concentrate on multinational conglomerates and large-cap stocks, different indexes might have a larger scope and include smaller firms. Alternatively, other indexes, such as the Wilshire U.S. Real Estate Investment Trust and Morgan Stanley Biotech Index, narrow their focus and concentrate on specific industries.
About the Author:
Currently the Chief Executive Officer and a Consultant with Financial Research, Training & Consulting, LLP, Dr. Antonios Antoniou has written on many issues related to economics. Ranked as number 710 in Most Prolific Authors in the Finance Literature: 1959-2008, Dr. Antoniou has written numerous articles on index futures.