What is P/L on the twelve-point long move?
Reveal the worked answer
+600 before costs.
Multiply points by the point value.
Equity Index Futures · FUT-01 · Core
What is an equity index future?
How does a single contract create broad exposure?
What you will learn and prerequisites
- Explain the mechanism in the lesson question.
- Reproduce the worked comparison and recognize its failure case.
An equity index future is a standardized contract tied to an index rather than one company. The displayed quote is an index level. The multiplier turns movement in that level into dollars. Institutions can therefore adjust broad exposure without trading every constituent separately.
Understand the mechanism
With a fictional quote of 5,000 and a 50-dollar point multiplier, one contract represents 250,000 notional. One point changes P/L by 50. Long futures gain when their price rises; short futures gain when it falls.
Margin supports obligations rather than purchasing the whole notional or capping loss. The major equity-index products discussed here generally use cash settlement, but their exact settlement, expiry and account rules still matter.
Walk through the process
Read symbol, contract month, multiplier, minimum tick and current product calendar. Translate one tick, an ordinary move and a stressed move into cash before considering position size.
A continuous analytical chart is not necessarily a tradable contract. Confirm the actual month used for execution and distinguish notional from margin.
Operational boundary
All prices, portfolio values and account balances are fictional. Real contract calendars, broker requirements and available liquidity must be checked for the instrument actually traded. The example's mathematical hedge or payoff is not an execution guarantee.
A worked example
Buy one fictional 50-dollar-per-point contract at 5,000 and close at 5,012. Gross P/L is 12×50=600. A short over the same move loses 600.
The chart shows the linear whole-contract result across exits from 4,980 to 5,020. There is no option-like curvature: price-change exposure is linear, though the account's financing and liquidation path can still be complex.
Open the calculation without leaving this lesson
What is an equity index future?—worked comparison
Vertical: Long-contract gross P/L (USD)
Horizontal: Exit futures level
1. Fictional example
Read the graph as a data table
| Exit futures level | Fictional example |
|---|---|
| 4,980 | -1,000 |
| 4,985 | -750 |
| 4,990 | -500 |
| 4,995 | -250 |
| 5,000 | 0 |
| 5,005 | 250 |
| 5,010 | 500 |
| 5,015 | 750 |
| 5,020 | 1,000 |
What would invalidate the reading?
Reading 5,000 as the cash at risk misses the 250,000 notional. Loss can exceed the original margin deposit, and a stop may slip.
Check your understanding
Try the question before revealing its answer. These are reading checks, not trading certification or a site completion record.
What is the critical failure to avoid?
Reveal the worked answer
Reading 5,000 as the cash at risk misses the 250,000 notional. Loss can exceed the original margin deposit, and a stop may slip.
Explain this risk before treating the example as a decision rule. A correct calculation does not guarantee a favorable market outcome.
Return to the question: How does a single contract create broad exposure? State the observed facts, the assumptions and the failure condition separately.
Sources, assumptions and downloadable script
External references support definitions and conventions. Worked scenarios and prose are original. No current quotes or dealer inventory are claimed.
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