The Investment Blog

I would like to know the difference between regular stocks and futures?

I would also like to find a free up to the minute chart of the nasdaq 100 future for reference?

Who are futures for and what are some facts and or tips about them?

Thank you for the help!

You are obviously familiar with the Nasdaq Index, and the S&P 500 index and the DJIA index.

Here’s a chart of the DJIA index

http://quotes.ino.com/chart/?s=INDEX_DJI

For a futures chart, you have to go where they quote commodities. Yahoo isn’t big on futures, so here is
the Dow mini futures chart

http://quotes.ino.com/chart/?s=CBOT_YM.M10.E

Some of the major indices and their charts are here, including gold and oil

http://quotes.ino.com/indexes.html

You can’t trade an index. So the index futures contract was developed to facilitate trade of an index. They trade exactly like any other commodity, and similar to a stock, except they expire quarterly. You’re just betting on the change in price. Not to worry. most people don’t hold them for more than a few minutes anyway, because they are highly leveraged contracts, like any futures contract.

What Does Futures Mean?
A financial contract obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future date and price. Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange. Some futures contracts may call for physical delivery of the asset, while others are settled in cash. The futures markets are characterized by the ability to use very high leverage relative to stock markets.

Futures can be used either to hedge or to speculate on the price movement of the underlying asset. For example, a producer of corn could use futures to lock in a certain price and reduce risk (hedge). On the other hand, anybody could speculate on the price movement of corn by going long or short using futures.
Investopedia explains Futures
The primary difference between options and futures is that options give the holder the right to buy or sell the underlying asset at expiration, while the holder of a futures contract is obligated to fulfill the terms of his/her contract.

In real life, the actual delivery rate of the underlying goods specified in futures contracts is very low. This is a result of the fact that the hedging or speculating benefits of the contracts can be had largely without actually holding the contract until expiry and delivering the good(s). For example, if you were long in a futures contract, you could go short in the same type of contract to offset your position. This serves to exit your position, much like selling a stock in the equity markets would close a trade.

Okay, we’ve defined a futures contract, now let’s look at an Index Futures contract

What Does Index Futures Mean?
A futures contract on a stock or financial index. For each index there may be a different multiple for determining the price of the futures contract.

Investopedia explains Index Futures
For example, the S&P 500 Index is one of the most widely traded index futures contracts in the U.S. Stock portfolio managers who want to hedge risk over a certain period of time often use S&P 500 futures to do so. By shorting these contracts, stock portfolio managers can protect themselves from the downside price risk of the broader market. However, by using this hedging strategy, if perfectly done, the manager’s portfolio will not participate in any gains on the index; instead, the portfolio will lock in gains equivalent to the risk-free rate of interest.

Alternatively, stock portfolio managers can use index futures to increase their exposure to movements in a particular index, essentially leveraging their portfolios.

And the last part of your question.

What Does Stock Mean?
A type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings.

There are two main types of stock: common and preferred. Common stock usually entitles the owner to vote at shareholders’ meetings and to receive dividends. Preferred stock generally does not have voting rights, but has a higher claim on assets and earnings than the common shares. For example, owners of preferred stock receive dividends before common shareholders and have priority in the event that a company goes bankrupt and is liquidated.

Also known as "shares" or "equity".

Investopedia explains Stock
A holder of stock (a shareholder) has a claim to a part of the corporation’s assets and earnings. In other words, a shareholder is an owner of a company. Ownership is determined by the number of shares a person owns relative to the number of outstanding shares. For example, if a company has 1,000 shares of stock outstanding and one person owns 100 shares, that person would own and have claim to 10% of the company’s assets.

Stocks are the foundation of nearly every portfolio. Historically, they have outperformed most other investments over the long run.

A good reference for financial terms and definitions go here:

http://www.investopedia.com/terms/f/futures.asp

http://www.investopedia.com/terms/i/indexfutures.asp

For example, oil futures are quoted at 89.5, which is also around the actual price of oil right now. Is the price quoted for the futures contract just the price of the commodity right now, or is it for a future date, and if so what is the time period used for a standard future?

The spot price may be significantly different than the futures price, and depends on many things, including the grade of oil and the point of delivery.

The futures contract is standardized for one particular grade and point of delivery. The front-month oil contract is currently for January delivery. Oil has a futures contract for each month, for the next 12 months.

The standard time period for each futures contract is 30 days.

In general, individuals are interested only in speculating on the price change of oil, and not interested in taking delivery, nor would we know what to do with 1,000 bbl of oil. As such, time is relatively unimportant.

Producers of oil and refineries use the oil futures to lock in a delivery price at some future date. If an oil producer thought oil prices were going down, he might sell short one Jan futures contract today at $92/bbl, for 1,000 bbl. In the third week of Jan, 2008, this producer could cover his short position and buy one contract back, or deliver his 1,000 bbl of oil for the agreed $92/bbl, regardless of the price of oil at that time.

Alternatively, if this same producer thought oil prices were going down in the longer-term, he could sell short the Sep, 08 contract and have almost one year to deliver or cover.

The futures price quoted in the current futures price, but it is also the delivery price at the end of the contract.