FUT1 Equity Index Futures

An equity index and its future trade over three periods.

Objective

Trade the future against the index across three periods. Assessed on profit and loss.

What it shows

• Futures pricing: the future as the index carried to settlement.
• Convergence: the future must equal the index at expiry.
• Three periods in which the future and the index can drift apart and come back.

Watch out for

• Holding a position in the future as if the index did not matter.
• Reading a wide basis as an opportunity when it is the cost of carry.
• The last period, where the two prices meet.

Who takes part

• Trader — every student. Trades RT100, an index, and RT100F, its future.

Class size

Ten to forty students in one role.