What are stock futures? Index vs single-stock futures explained

Contents

1. What are stock futures?
2. How do index futures differ from single-stock futures?
3. What does cash settlement mean when a contract expires?
4. Which are the main US index futures: ES, NQ, YM and RTY?
5. When do index futures trade, and what do overnight moves mean?
6. Hedging vs speculating: who trades index futures and why?
7. How do you test a rule on ES index futures?
8. Frequently asked questions
9. References

What are stock futures?

What are stock futures? A stock future is a contract to buy or sell a stock or a stock index at a price fixed today, for a date in the future. For index futures such as ES, no shares change hands: at the end, one side pays the other the difference between the agreed price and the index level.

Think of ordering a car at a price agreed today for delivery next month. If the car's price rises before delivery, you got a good deal; if it falls, the dealer did. A stock future works the same way, except that for an index future there is no car. The two sides agree only to pay each other the price difference.

The multiplier is the dollar amount each index point is worth in one contract, and the tick is the smallest price step the exchange allows. These two numbers turn index points into money, and the free futures contract calculator does that conversion for a given entry and exit price.

One idea runs through this article: for a trader testing rules, an index future is a bet on a price difference, and what decides the test result is the session, the costs and the validation, not which index you pick. The sections below explain the contracts first and then show what a fair test looks like.

How do index futures differ from single-stock futures?

Index futures track a whole index and settle in cash, while single-stock futures track one company and are listed on fewer exchanges, so the two differ in what you are exposed to, how they settle and how liquid they are. An index future is a contract on the level of a stock index, such as the S&P 500. A single-stock future is a contract on the price of one company's shares.

The practical difference is where your risk comes from. In an index future, bad news about one company moves the index a little, because that company is one of many. In a single-stock future, the same news is the whole move. Trading hours follow the listing exchange: CME Group index futures trade nearly around the clock, while single-stock futures on an exchange such as TAIFEX trade in that exchange's sessions. Whether a single-stock future settles in cash or in shares also depends on the exchange that lists it, so read the contract page before testing one.

Feature	Index futures	Single-stock futures
What it tracks	A whole index (hundreds of stocks)	One company's share price
Settlement	Cash	Cash or share delivery, depending on the exchange
Risk from one company's news	Spread across many stocks	Concentrated in one name
Trading hours	Near 24 hours on CME Group	Follows the listing exchange's sessions
Typical users	Portfolio hedgers and systematic traders	Traders with a view on one stock

Index futures also exist outside the US, and the same distinctions apply. A trader in Taiwan can read how the FTSE Taiwan index futures compare with TAIEX futures to see how two index contracts on the same market can still differ in multiplier, session and settlement.

What does cash settlement mean when a contract expires?

At expiry the exchange pays or charges the difference between your trade price and the final settlement price, which is why most systematic traders roll to the next contract before expiry instead of holding to settlement. Cash settlement is the process in which gains and losses are paid in money, with no delivery of the underlying shares.

Settlement is not only a final event. Every trading day the exchange marks each open position to that day's settlement price and moves the gain or loss between the accounts of buyers and sellers. By expiry day, almost all of the profit or loss has already been paid. The last step uses the final settlement price, which the exchange calculates from the index itself on expiry day and publishes on the contract page. After that step the contract no longer exists.

Rolling means closing the position in the expiring contract and opening the same position in the next contract month. Systematic traders roll for two reasons. First, trading volume moves to the next contract in the days before expiry, so the expiring one gets thinner. Second, a rule that holds a position across expiry would have to deal with the final settlement price, which is calculated differently from a normal close. The rollover rules for a futures backtest explain how a continuous price series is built from the separate contract months.

1. Enter the trade at price X in the current contract.
2. Each day, the account is credited or debited by the move to the day's settlement price.
3. On the roll date, close the position in the expiring contract and reopen it in the next month.
4. On expiry day, any position still open is closed in cash at the final settlement price.

Which are the main US index futures: ES, NQ, YM and RTY?

The four main CME Group contracts each track a different US index (S&P 500, Nasdaq-100, Dow Jones Industrial Average, Russell 2000), each has a smaller micro contract, and the exchange's contract page is the only place to read the current multiplier and tick value. The letters are exchange symbols: ES is the E-mini S&P 500, NQ the E-mini Nasdaq-100, YM the E-mini Dow, and RTY the E-mini Russell 2000.

A micro contract is a smaller version of the same future, sized at one tenth of the E-mini, and it tracks the same index. The micro symbols are MES, MNQ, MYM and M2K. For the Nasdaq-100 contract the exchange lists a multiplier of $20 per index point and a minimum tick of 0.25 index points, worth $5.00. Exchanges can change multipliers, ticks, hours and settlement rules, so check the CME Group contract page for each symbol before you set up a test.

Symbol	Index tracked	Micro contract	Multiplier and tick value
ES	S&P 500	MES	Read on the CME contract page
NQ	Nasdaq-100	MNQ	$20 × index; tick 0.25 = $5.00 (CME contract page)
YM	Dow Jones Industrial Average	MYM	Read on the CME contract page
RTY	Russell 2000	M2K	Read on the CME contract page

The choice between an E-mini and its micro changes the dollar size of each trade, not the price path. A rule tested on NQ and traded on MNQ sees the same signals, with each point worth one tenth as much and with commission that is not one tenth as much, so the cost per point is higher on the micro. Which contract fits an account is a position-sizing question; the price behaviour you test is the same.

When do index futures trade, and what do overnight moves mean?

Index futures trade almost around the clock from Sunday evening to Friday afternoon US time, so a large part of the daily move happens while the stock market is closed, and a backtest must say which session its bars cover. CME Group equity index futures trade from 6:00 p.m. Eastern time on Sunday to 5:00 p.m. Eastern time on Friday, with a daily break from 5:00 p.m. to 6:00 p.m. The US stock market trades from 9:30 a.m. to 4:00 p.m. Eastern time. The free futures market hours by exchange tool shows these sessions in your own time zone.

An overnight move is the change in the futures price between the stock market's close and its next open. When economic data is released at 8:30 a.m. Eastern time, or when Asian and European markets fall during the US night, the futures price reacts at once. By 9:30 a.m. the move is already in the price, and the stock market opens with a gap. A trader who only looks at the cash session sees the gap; a trader who looks at the futures sees the path that produced it.

For a backtest this means one decision made before the first run: do the bars cover the full session or only the cash hours? A daily bar built from the full session has a different open, high and low from a daily bar built from 9:30 a.m. to 4:00 p.m., and a rule that reads the open behaves differently on each. The article on stock index futures after hours and what a backtest should do with them walks through that choice. Traders in Asia face a second question, because the US night is their working day; the guide to ES and NQ hours for traders in Taiwan converts the sessions to local time.

Hedging vs speculating: who trades index futures and why?

A hedger holds stocks and sells index futures to offset a fall, while a speculator takes a position only to profit from the move, and both pay the same costs, so the trade purpose decides how you judge the result, not the contract. A hedge is a position taken to cancel the risk of another position you already hold. Speculation is a position taken for its own result.

The hedger's logic is simple. A portfolio that follows the S&P 500 loses value when the index falls. A short ES position gains value when the index falls. Hold both, sized to match, and the two moves cancel. The hedger does not want a profit from the futures; a futures loss means the portfolio gained, and that is fine. The hedger judges the trade by how small the combined swing was. The speculator has no portfolio to protect. The futures position is the whole trade, and the speculator judges it by the net result after commission and slippage.

Systematic traders are speculators in this sense, even when they hold positions for days. Their rules buy and sell the price difference, and every rule is judged after costs. That is why the test in the next section charges commission and slippage on every trade from the first run.

How do you test a rule on ES index futures?

Testing a rule on ES means choosing one bar size and session, charging commission and slippage on every trade, filling on the next bar, and then validating the kept candidate on data it never saw, because the one survivor of a large search always looks better than it will trade. The order of the steps matters. A test that adds costs at the end, or that picks the session after seeing results, is a different test from the one described here.

1. Pick the bar size and session. For example, daily bars built from the full session. Write it down before the first run.
2. Set commission and slippage per trade. Use the fees your broker charges plus at least one tick of slippage per side for a market order.
3. Write the entry and exit rule. One rule, with its parameter ranges stated in advance.
4. Fill on the next bar. A rule that decides on a bar's close cannot trade at that close; it trades at the next bar's open.
5. Run the search and keep one candidate. The kept candidate is the best of many tries, and part of its result is luck that lined up with the history.
6. Validate on unseen data and read the report. Hold back a block of history from the search and run the kept candidate on it unchanged.

The run below, produced by AlphaPrime (Valynox) with commission and slippage charged inside every evaluation, shows what the output of steps 1 to 5 looks like. It tested ES daily bars from 2019-01-02 to 2025-06-30, long and short, one contract, with $20 commission and $25 slippage charged on every trade. The rule is a stand-in, not the subject of this article: a MACD crossover was the only entry and exit, with no stop, no target and no filter. The search tried 1,024 variants of that rule and kept one, chosen for its return against its drawdown. Picking the kept one after the fact flatters it, so these numbers describe one candidate on one stretch of history, not what the rule earns or what a reader can expect.

Read the table as a set of questions for step 6, not as an answer. The average trade of $409.59 is after $45 of costs per trade, so a doubling of slippage would still leave most of it; that is the first check to run. A win rate of 50.89% with a profit factor of 1.46 says the winners were larger than the losers, which is typical of a trend-following rule, and a rule like that depends on a few large trades, so the second check is to remove the biggest winners and see what remains. The max drawdown of $22,175 came from 169 trades over six and a half years, which is a small sample for a daily rule; the third check is whether the drawdown on unseen data stays in that range. In AlphaPrime, strategy validation applies the thresholds you set for these checks and stops the later checks when a candidate fails an earlier one, so the kept candidate from a search of this size is graded by rules written before the result was seen.

The same six steps apply to every rule type on ES, from breakouts to mean reversion; the overview of five types of futures algo trading strategies and how to backtest each shows where each type usually fails. As a next step, open the CME Group contract page for the symbol you plan to test, write down its multiplier, tick value and session hours, and set your commission and slippage per trade before you load a single bar.

Frequently asked questions

What are futures in stocks?

Futures in stocks are contracts that fix a price today for a stock or a stock index at a later date. Index futures such as ES settle in cash, so the buyer and seller only exchange the difference between the agreed price and the index level. Single-stock futures do the same for one company's shares and are listed on fewer exchanges.

What is futures in the stock market used for?

Two groups use stock index futures. Hedgers who hold stock portfolios sell index futures so that a fall in the index is offset by a gain on the short futures position. Speculators, including systematic traders, buy or sell the futures to take the price move itself. Both pay commission and slippage on every trade.

Do I receive shares when a stock index future expires?

No. Index futures such as ES, NQ, YM and RTY are cash settled. Each day the exchange pays or charges the move to that day's settlement price, and on expiry day any open position is closed at the final settlement price. Most systematic traders roll to the next contract month before expiry.

Are "futures stocks" the same thing as stocks?

No. A stock is a share of a company that you own. A stock future is a contract about the future price of a stock or an index, and for index futures you never own any shares. Because you hold a contract rather than shares, you can sell a future short as easily as you can buy it, and the position is marked to market every day.

References

• CME Group. E-mini Nasdaq-100 Futures Contract Specs. https://www.cmegroup.com/markets/equities/nasdaq/e-mini-nasdaq-100.contractSpecs.html
• CME Group. Micro E-mini Nasdaq-100 Index Futures Contract Specs. https://www.cmegroup.com/markets/equities/nasdaq/micro-e-mini-nasdaq-100.contractSpecs.html
• CME Group. FAQ: Micro E-mini Equity Index Futures. https://www.cmegroup.com/articles/faqs/frequently-asked-questions-micro-e-mini-equity-index-futures.html