Trading strategies

ES contracts allow investors to hedge and achieve price certainty by locking in prices in advance or to protect against adverse price impact on the value of one’s assets.

Also, ES contracts provide opportunities for arbitraging between the ES and ready market to take advantage of the price difference between two markets.

For instance, when the underlying is cheaper or more expensive than the ES contract, arbitragers will buy the cheaper instrument and sell the more expensive instrument, thus profiting the price difference between the two.

When an ES contract is trading at a discount to the underlying, long holders of the underlying can consider selling in the ready market and buying the ES contracts.

Investors who wish to sell the securities but have no urgent need for cash in the short term can consider taking short positions in ES contracts that are trading at a higher price for a forward settlement date.

Benefits of trading ES contracts

When you enter into an ES contract, you only have to put up a small initial deposit or margin instead of the full contract value or price of the underlying security, allowing you to maximise capital efficiency.

If you hold a bearish view of the market, ES contracts will allow you to gain from downward movements of stock prices by taking short positions, with a reduced initial capital outlay.