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I see bid and ask quotes for stock market index futures (e.g. the S&P500 mini future contract). However, I've just read from multiple sources that there is no cost to enter into a futures contract. If so, then what is the bid/ask supposed to reflect - is it the strike price of the future, or is it the price you will pay for entering into a contract with a certain strike price?

Another way to formulate the question: Is there only one exchange-traded futures contract for each index with a fixed strike price, or are there multiple futures, a futures chain like there is one for options?

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Well, futures don't have a "strike" like an option - the price represents how much you're obligated to buy/sell the index for at a specified date in the future. You are correct that there's no cost to enter a contract (though there may be broker fees and margin payments). Any difference between the contract price and the price of the index at settlement is what is exchanged at settlement.

It's analogous to the bid/ask on a stock - the bid price represents the price at which someone is willing to "buy" a futures contract (meaning enter into a long position) and the ask is how much someone is willing to "sell" a contract.

So if you want to take a long position on S&P500 mini futures you'd have to enter in at the "ask" price. If the index is above your contract price on the future expiry date you'll make a profit; if it is below the contract price you'll take a loss.

  • Standardized futures products are marked to market at the end of each trading day. That is, you owe or are owed the difference between the price at the close and the price at open (or when you opened the position, whichever is later) each day. This way, your broker's risk is kept under control. – TainToTain Feb 3 '17 at 0:42
  • True, but that's more an accounting function and doesn't impact the bid/ask price. I was more illustrating that futures don't have a "price" that you pay up front like stocks or options. – D Stanley Feb 3 '17 at 1:00

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