Many people are speculating the S&P500 index through futures, but are there other trading options besides futures? Well, the US500 (or SPX500)’s Contract for Difference (CFD) on the S&P 500 index is another derivative trading product with a lower entry barrier to trade on.
This article will explain in detail the concept and trading rules of the US500 CFD, where you can learn:
- US500 is the trading symbol for the S&P 500 index CFD, while some brokers may use SPX500 as its symbol.
- US500 offers flexible leverage and contract sizes, with leverage of up to 500 times and a minimum tradable size of 0.1 lots.
- Margin requirements as low as US$10, investors can trade the S&P500 index through US500.
What is US500? – S&P500 CFD
Many people often mistakenly equate the US500 or SPX500 with the S&P500 Index. In fact, the US500 (or SPX500) is the CFD derivatives based on the near-month futures contract of the S&P500 Index, it’s also often referred as US500 cash.
The quote price for US500 is related to the S&P500 Index futures as below:
US500 Quote = S&P 500 futures near-month contract + Fair value
In simple terms, the US500 price closely mirrors the near-month futures contract, which, in turn, closely tracks the quoted price of the S&P 500 index. Thus, through US500 cash, one can trade the price of the S&P 500 index.
Due to its highly versatile trading conditions, the US500 has gained popularity among individual investors in recent years, becoming a popular derivative to trade the S&P 500 Index.
Why trade the US500?
Compared to its underlying product, the S&P500 futures, its exhibit significant differences:
- S&P Futures: Hedging stock market positions.
- SPX500: Price speculation on S&P 500 Index – buy low, sell high; sell high, buy low.
While speculation plays a considerable role in S&P 500 futures trading, a significant portion of futures trading volume comes from investors hedging their stock market positions.
However, for SPX500 CFD, the primary objective for the vast majority of traders is to speculate on the price movements of the S&P index.
Why choose to trade US500?
US500 has several advantages, especially for regular individual traders. Its most significant advantage is its extremely low trading threshold – requiring just less than $10 as margin to trade the S&P 500 index.
1. Ultra-Low Trading Threshold
While both futures and CFDs involve margin trading, CFD products provide leverage of up to several hundred times, significantly reduced the margin required for trading the US500 cash compared to futures.
2. Smaller Contract Sizes
In contrast to futures where the minimum trade is often 1 lot, US500 allows trading as small as 0.1 lots. Coupled with leverage of several hundred times, this means investors can start trading with a margin of less than $25.
3. No Rollover Contract
Contract rollover is a term in futures trading that refers to the process of renewing positions onto a new contract as the current futures contract expiring, allowing traders to continue their positions.
However, the SPX500 CFD does not require this approach as its price is continually anchored to the near-month futures contract of the S&P index.
4. Effortless Online Account Opening
Compared to the relatively complex requirements of futures trading, many CFD brokers offer extremely convenient online account opening processes. It takes just a few minutes to complete the account setup and begin trading.
Risk Factor Trading the US500
1. Leverage Risk
Similar to S&P futures, the use of high leverage can amplify profits and losses on low market volatility. While leverage can lower the entry barrier to trading, excessive use of leverage to build large positions significantly increases the risk of gains or losses.
Readers unfamiliar with leverage mechanisms and risks can refer to articles explaining what leverage is.
2. Brokerage Credit Risk
Unlike futures brokers, since this involves over-the-counter trading, there’s significant variability in the safety and reliability of different CFD brokers. Choosing a broker that’s highly regulated is crucial when trading US500 (SPX500).
SPX500 Market Hours
The trading hours for SPX500 or US500 are aligned with the quoted times and are pegged to the trading hours of the S&P futures. Additionally, there’s no need to consider special trading hours related to expiry or settlement dates.
| SPX500 (US500) Trading Hours | ||
|---|---|---|
| US Daylight Saving Time | US Standard Time | |
| Trading Hours | Monday 06:00 to Saturday 05:00 | Monday 07:00 to Saturday 06:00 |
| Market Break | Daily 05:00 to 06:00 | Daily 06:00 to 07:00 |
With trading hours spanning 23 hours each day, SPX500 enables individual traders to engage in S&P500 index trading outside their regular working hours.
SPX500 Position Size and Value
Factors to determine when trading the US500 include:
- Contract size: The value of one contract
- Minimum trading lots
Unlike standardized contract specs for S&P futures, CFD brokers may have varying contract sizes and minimum trading lots. For most brokers:
The value of one SPX500 contract = S&P index quote × $10
Assuming the S&P 500 index quote is 4,350, then the value of one SPX500 CFD contract would be 4,350 × $10 = $43,500.
Regarding minimum trading lots, many brokers offer a minimum trading size of 0.1 lots, where the contract value for 0.1 lots equals $4,350.
SPX500 Leverage & Margin Requirements
After knowing how to calculate the contract value, knowing the leverage allows investors to calculate the trading margin requirements – the minimal capital requirement to trade the US500.
Different brokers provide different leverage, commonly ranging from 100x,200x to 500x times. The table below illustrates the margin requirements for trading 1 lot and 0.1 lots at three different leverage levels, assuming a quote price of SPX500 is 4,350:
| US500 (SPX500) Margin Requirements | ||
|---|---|---|
| Leverage | 1 Lot margin | 0.1 Lot margin |
| 1:100 | 435 USD | 43.5 USD |
| 1:200 | 217.5 USD | 21.75 USD |
| 1:500 | 87 USD | 8.7 USD |
The calculation is below:
Margin = Contract value ÷ Leverage.
With a minimum requirement of approximately $10, one can easily trade the S&P500 index through US500 Cash, making it accessible for individual traders at lower threshold.
US500 Point Value and Spread
As shown in the image, SPX500 quotes are precise to two decimal points, where the digit before the decimal point represents one point. The difference between the buy and sell prices in the image is 0.4 points.
The difference between the Bid and Ask prices is called the spread, which constitutes the cost of trading SPX500. Using the quoted values in the image, let’s illustrate the spread cost for taking a long (buy) and short (sell) position with one lot of SPX500:
1. Long position on US500
The buying price for opening a long position is the Ask Price quote, i.e., 4,415.62. Assuming the quoted price remains unchanged and immediately closing the position, the closing price for the long position is the Bid Price quote – 4,415.22.
Therefore, the spread cost for going long on one lot of SPX500 based on the quoted values in the image is (4,415.22 – 4,415.62) × $10 = $4.
2. Going Short on US500
The selling price for opening a short position is the Bid Price quote, i.e., 4,415.22. Assuming the quoted price remains unchanged and immediately closing the position, the closing price for the short position is the Ask Price quote – 4,415.62.
Hence, the spread cost for going short on one lot of SPX500 based on the quoted values in the image is (4,415.62 – 4,415.22) × $10 = $4.
How to trade SPX500 – Choosing the Right Brokers
When selecting a CFD brokerage firm, it’s essential to consider various factors such as regulation, services offered, leverage, and spread costs to choose the most suitable broker. Below are recommendations for the top five brokers with high composite ratings.
- ThinkMarkets
- IG
Frequently Asked Question on Trading US500
1. Add SPX500 (US500) to Metatrader 5/Metatrader 4
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2. What is SPX500 in Forex
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