In order to show how to calculate Futures value, we must start with an example.

Say you own $240,000 of stock in the S&P 500 Index market at the price of 1400.00, and you would like to “hedge”, or protect your long position because you’re wary of the economy going into a tailspin.

You would then calculate the Futures value at 1400.00 for the E-mini SP500:

For each full rotation of the contract, or “handle”—in this case, 1400.00 to 1401.00, is worth $50. How do we get this? By seeing that this contract has 4 “ticks” per handle (in this case, a tick is 0.25)

• 1400.00-1400.25 (worth $12.50 per one contract)
• 1400.25-1400.50 (worth $12.50 per one contract)
• 1400.50-1400.75 (worth $12.50 per one contract)
• 1400.75-1401.00 (worth $12.50 per one contract)

Next, we take $50 x 1400.00:

• $50 x 1400.00 = $60,000

Now, using your portfolio value of $240,000, we divide that by $60,000.

• $240,000 / $60,000 = 4

With the above calculations, we arrive at the conclusion that in order to properly hedge your portfolio, you would need to sell 4 E-mini SP500 Futures contracts. In the above example, you would need a minimum of $2,000 in your account to hedge your $240,000 position. In short, you can see how Futures provides traders with the opportunity for success.

*It’s also important to note that each Futures contract requires approximately $500 of collateral or “margin” to fund this position—be sure to check with your FCM (Futures Commission Merchant) for specific margin requirements for your trading.