Equity Index Futures

Equity index futures come up when an investor holding stocks sells futures to prepare for a fall in prices, and when an investor planning to buy stocks buys futures to prepare for a rise.

The index cannot be delivered, so only the difference is settled

An equity index is an abstract number, and the index itself cannot be handed over. For this reason, equity index futures are futures in which nothing is delivered at expiry. Instead, the parties pay or receive only the difference between the traded price and the value of the index at expiry. Settling by paying or receiving a difference is called cash settlement¹.

The index value used to calculate this difference at expiry is called the special quotation (SQ value). For futures on the Nikkei Stock Average, the expiration date (the SQ day) is the second Friday of each contract month². The SQ value is calculated from the opening prices of the stocks in the Nikkei Stock Average on the SQ day, and Osaka Exchange publishes it after trading ends that day. Because the regular Nikkei Stock Average is also calculated using quoted prices, the SQ value does not always match the index's opening value on that day³.

You can also close a trade without waiting for expiry. By the last trading day, a trader who bought sells and a trader who sold buys back (a resale and a buyback). Because the trader makes the opposite trade to the first one, this is called an offsetting trade⁴. Trades not offset in this way (open positions) are settled automatically at the SQ value¹. Futures traded on Osaka Exchange are cleared by Japan Securities Clearing Corporation (JSCC)⁵. How the last trading day is set and how to calculate the profit or loss from an offsetting trade are covered in Contract Months and Tick Sizes.

Profit and loss at expiry is the difference between the SQ value and the traded price

The profit or loss on equity index futures held to expiry is the difference between the SQ value and the traded price, multiplied by the contract size and the number of contracts. Nikkei 225 Futures have a multiplier of 1,000 on the Nikkei Stock Average, and each unit is counted as one contract². Consider a hypothetical example in which Company P buys one contract of Nikkei 225 Futures at 40,000 yen, Company T sells one contract at the same price, and both hold them to expiry.

If the SQ value is 42,000 yen, P's result is (42,000 − 40,000) × 1,000 × 1 contract, a profit of 2 million yen. T's result is (40,000 − 42,000) × 1,000 × 1 contract, a loss of 2 million yen. If the SQ value is 38,000 yen, P loses 2 million yen and T gains 2 million yen. The buyer's profit or loss is (SQ value − purchase price), and the seller's is (sale price − SQ value), each multiplied by the contract size and the number of contracts⁴. In both cases, the profits and losses of P and T add up to zero⁷.

Figure description

Profit and loss at expiry for a party that bought Nikkei 225 Futures at 40,000 yen and held them to expiry. The horizontal axis is the SQ value, and the vertical axis is the profit or loss per 1 point of the Nikkei Stock Average. The profit or loss for one contract is 1,000 times this value. The profit or loss is a straight line that rises by the same amount as the SQ value. It is 0 (the break-even point) at an SQ value of 40,000 yen, a profit above that, and a loss below it. At an SQ value of 44,000 yen the profit is 4,000 yen, and at 36,000 yen the loss is 4,000 yen, which is a profit or loss of 4 million yen per contract. The seller's profit or loss is this line flipped upside down around the zero line.

Losses can exceed the margin

Nikkei 225 Futures are traded by depositing collateral called margin. You can trade an amount more than 10 times the margin, so a small amount of funds lets you trade a large amount. This is called leverage².

Leverage magnifies losses as well as profits. Depending on price moves, you may need to deposit additional margin, and losses can exceed the margin you deposited². As the payoff figure shows, the buyer's loss grows as the market falls, and the seller's loss grows as the market rises, in proportion to the size of the move.

Main equity index futures in Japan

The main equity index futures in Japan are futures on the Nikkei Stock Average and on the Tokyo Stock Price Index (TOPIX), listed on Osaka Exchange. For each index, there are products with different contract sizes. Osaka Exchange's trading rules outline, as of April 13, 2026, sets them as follows⁶.

The Nikkei Stock Average is an average of the prices of 225 actively traded stocks in the Prime Market of the Tokyo Stock Exchange, adjusted to remove the effects of events such as stock splits. TOPIX is a market-capitalization-weighted index that shows the market value of stocks relative to a base date⁸. For the same price move, the profit or loss on one contract of Nikkei 225 Futures is 10 times that on Nikkei 225 mini and 100 times that on Nikkei 225 Micro Futures.

Osaka Exchange also lists futures on other Japanese and overseas equity indices, such as JPX-Nikkei Index 400 Futures and DJIA Futures⁹.

Interest and dividends in the theoretical price

The theoretical price of equity index futures is the current index plus an amount for interest to expiry, minus an amount for the dividends received by expiry. The futures price itself is set by supply and demand, but the theoretical price is a guide to whether that price is high or low².

In words, the formula is as follows.

$$\text{Theoretical price} = \text{Index} + \text{Interest amount} - \text{Dividend amount}$$

The interest amount is the index multiplied by the interest rate and the time to expiry. It corresponds to the cost of funding the purchase of stocks that make up the index. The dividend amount is the index multiplied by the dividend yield (the annual dividend per share as a percentage of the share price¹⁰) and the time to expiry. It corresponds to the dividends received from holding those stocks until expiry¹¹.

Osaka Exchange gives a formula that calculates the theoretical price of Nikkei 225 Futures from the Nikkei Stock Average, the interest rate, the expected dividend yield, and the number of days to expiry. Its arbitrage example also multiplies the amount paid for the stocks by the interest rate or the expected dividend yield and the number of days, to calculate the funding cost and the dividend income¹¹. If other conditions such as the interest rate stay the same, a higher dividend yield makes the dividend amount larger and the theoretical price lower. If the dividend amount is larger than the interest amount, the theoretical price is below the index.

The approach of finding a forward price by adding the cost of holding the spot asset until maturity to its price and subtracting the income earned while holding it is called the cost of carry model¹². For an equity index, this income is dividends. The idea is covered in Forwards and Futures.

Hedging, asset allocation, arbitrage, and speculation

Equity index futures are used for hedging, to reduce the effect of moves in the whole stock market. Osaka Exchange lists, as a role of equity index futures, that investors holding stocks in many companies can hedge the risk of moves in the market as a whole¹³. There are two kinds of hedge: a short hedge and a long hedge¹⁴.

In a short hedge, an investor who holds stocks sells equity index futures in advance. If the market falls, the gain from buying back the futures makes up for the loss on the stocks¹⁴. If the market rises instead, the loss on the futures reduces the gain on the stocks. In a long hedge, an investor who plans to buy stocks buys futures in advance. If the market rises, the gain on the futures can be added to the funds for buying the stocks. If the market falls, the futures make a loss, which offsets the benefit of buying the stocks more cheaply¹⁴. In both cases, whichever way the market moves, the combined result of the stocks and the futures varies less.

Consider a hypothetical example in which the Nikkei Stock Average is 40,000 yen and Company T, which holds 80 million yen of stocks, hedges by selling 2 contracts of Nikkei 225 Futures at 40,000 yen. The stocks move by the same percentage as the Nikkei Stock Average, the futures are held to expiry, and the SQ value equals the Nikkei Stock Average at expiry.

If the SQ value falls to 36,000 yen, the stocks fall 10% for a loss of 8 million yen. The sold futures make (40,000 − 36,000) × 1,000 × 2 contracts, a profit of 8 million yen, which makes up for the loss. If it rises to 44,000 yen, the stocks gain 8 million yen, but the futures lose 8 million yen, and the gain is offset⁷.

Consider a hypothetical example in which Company P, which plans to buy 80 million yen of stocks around expiry, buys 2 contracts of Nikkei 225 Futures at 40,000 yen now. The price of the stocks to be bought moves by the same percentage as the Nikkei Stock Average, and the other conditions are the same as in the short hedge example.

If the SQ value rises to 44,000 yen, the cost of buying the stocks increases by 8 million yen to 88 million yen, but the bought futures make (44,000 − 40,000) × 1,000 × 2 contracts, a profit of 8 million yen, which can be added to the purchase funds. If it falls to 36,000 yen, the cost drops by 8 million yen to 72 million yen, but the 8 million yen loss on the futures offsets the saving. In both cases the net cost is 80 million yen, and the change in the purchase cost from the rise or fall of the SQ value is removed⁷.

Institutional investors also use equity index futures to adjust their asset allocation. For example, the Government Pension Investment Fund (GPIF) gives an example of using equity index futures as a temporary substitute for selling stocks when it brings its asset mix back to its targets¹⁵.

Equity index futures are also used for arbitrage, which sells the overpriced side and buys the underpriced side when the gap between the futures price and the theoretical price grows beyond a certain level. They are also used for speculation, which aims to profit from price moves by predicting whether the market will rise or fall¹⁶.

How equity index futures began in Japan

According to the product history of Japan Exchange Group, trading in Nikkei 225 Futures began on the Osaka Securities Exchange (now Osaka Exchange), and trading in TOPIX Futures began on the Tokyo Stock Exchange, on September 3, 1988. Among the equity index futures in the product history, this is the earliest start of trading¹⁷.

In June of the previous year, 1987, the Osaka Securities Exchange had started Kabusaki 50, a stock futures contract whose underlying was a package of 50 stocks. The Japan Exchange Group history describes it as Japan's first stock futures market. Trading in Kabusaki 50 ended in March 1992¹⁸.

The Tokyo Stock Exchange's TOPIX Futures moved when the Tokyo Stock Exchange's derivatives market was integrated into Osaka Exchange on March 24, 2014¹⁹. They are now traded on Osaka Exchange, like Nikkei 225 Futures⁶.

In June 1989, trading in equity index options on the Nikkei Stock Average also began on the Osaka Securities Exchange¹⁷.

Notes

1. Osaka Exchange, "契約（取引成立）から満期まで（先物）" (From contract (execution) to expiration (futures)), Kitahama Investment School (in Japanese). ↩ ↩²

2. Japan Exchange Group, "商品概要" (Product overview), Nikkei 225 Futures (in Japanese; updated November 6, 2023; English version: "Overview", https://www.jpx.co.jp/english/derivatives/products/domestic/225futures/index.html): the "商品概要" (Product overview) section (the contract size is 1,000 times the Nikkei Stock Average, one contract; the expiration date (SQ day) of each contract month is the second Friday), the "証拠金" (Margin) section (trading an amount more than 10 times the margin; the leverage effect also works strongly on losses, and additional margin or losses larger than the margin can arise), and the "理論価格" (Theoretical price) paragraph. ↩ ↩² ↩³ ↩⁴ ↩⁵

3. Japan Exchange Group, "特別清算数値（SQ値）" (Special quotation (SQ value)), glossary (in Japanese). ↩ ↩²

4. Osaka Exchange, "決済方法（先物）" (Settlement methods (futures)), Kitahama Investment School (in Japanese), "反対売買による決済" (Settlement by offsetting trades) and "SQ値による決済" (Settlement by SQ value). ↩ ↩²

5. Osaka Exchange, "先物取引のすべて" (All about futures trading, in Japanese; published August 2024), page 38 (page 41 of the PDF), the opening of "建玉及び決済について" (Open positions and settlement) (clearing and settlement at JSCC) and "（3） 最終決済" ((3) Final settlement) (the final settlement value is a figure shown down to the sen; there is no delivery of the underlying, and settlement is by the difference). ↩ ↩²

6. Osaka Exchange, "指数先物取引制度要綱" (Outline of the index futures trading rules, in Japanese; as of April 13, 2026), page 2, "(2) Large 取引、Mini 取引及び Micro 取引" (Large, Mini and Micro contracts), and page 7, "(3) 呼値の単位" (Tick size). ↩ ↩² ↩³ ↩⁴

7. The profits and losses do not include fees. ↩ ↩² ↩³

8. Osaka Exchange, "先物取引のすべて" (All about futures trading, in Japanese), pages 2–3 (pages 5–6 of the PDF), "株価指数先物取引の仕組み" (How equity index futures work), "（1） 取引の対象" ((1) Underlying) and "②TOPIX（東証株価指数）" (② TOPIX (Tokyo Stock Price Index)). ↩

9. Japan Exchange Group, "商品一覧（先物・オプション）" (Product list: futures and options, in Japanese; updated April 13, 2026; English version: "List of Products", https://www.jpx.co.jp/english/derivatives/products/list/index.html), "国内株価指数" (Japanese equity indices) and "海外株価指数" (Overseas equity indices). ↩

10. Japan Securities Dealers Association, "配当利回り" (Dividend yield), in "投資の時間 金融・証券用語集" (Time for investing: glossary of financial and securities terms) (in Japanese). According to the note at the bottom of the page, the Japan Securities Dealers Association created the page, the association's financial and securities education activities moved to the Japan Financial Literacy and Education Corporation in August 2024, and the page's content has not been updated since June 2024. ↩

11. Osaka Exchange, "先物取引のすべて" (All about futures trading, in Japanese), page 42 (page 45 of the PDF), "裁定取引の具体例" (Worked example of arbitrage): "①日経225先物の理論価格" (① Theoretical price of Nikkei 225 Futures) (S is the Nikkei Stock Average, r is the interest rate, and δ is the expected dividend yield), "②金融費用（資金調達コスト）の計算" (② Calculating the funding cost) and "③配当収益の計算" (③ Calculating the dividend income). ↩ ↩²

12. Japan Exchange Group, "国債先物入門" (Introduction to JGB Futures, in Japanese), by Takahiro Hattori, 2021, "BOX 2 先渡（フォワード）価格のプライシング" (Pricing the forward price), pages 20–21. Using government bonds as the example, the source adds the cost of holding to the spot price and deducts the interest income from holding from that cost. ↩

13. Osaka Exchange, "先物取引のすべて" (All about futures trading, in Japanese), page 1 (page 4 of the PDF), item ❶ of "先物取引とは" (What is futures trading?). ↩

14. Osaka Exchange, "先物取引のすべて" (All about futures trading, in Japanese), page 40 (page 43 of the PDF), "（2） ヘッジ取引" ((2) Hedging): "（1） 売りヘッジ" ((1) Short hedge) and "（2） 買いヘッジ" ((2) Long hedge). ↩ ↩² ↩³

15. Government Pension Investment Fund, "カ行用語集" (Glossary, ka row) (in Japanese), the entry "株価指数先物" (Equity index futures) (an example of using equity index futures as a temporary substitute for selling the underlying assets held when rebalancing). ↩

16. Osaka Exchange, "利用方法（先物）" (How to use futures), Kitahama Investment School (in Japanese), "スペキュレーション" (Speculation) and "理論価格と裁定取引" (Theoretical price and arbitrage). ↩

17. Japan Exchange Group, "商品の歴史" (Product history, in Japanese; updated April 13, 2026), the row for September 3, 1988 ("日経225先物取引開始" (Start of Nikkei 225 Futures trading) in the Osaka Exchange column and "TOPIX先物取引開始" (Start of TOPIX Futures trading) in the Tokyo Stock Exchange column) and the row for June 12, 1989. ↩ ↩²

18. Japan Exchange Group, "沿革" (History, Osaka Exchange, membership organization era, in Japanese), the entries for June 1987 and March 1992. ↩

19. Japan Exchange Group, "沿革" (History, Osaka Exchange, since the establishment of Japan Exchange Group, in Japanese; English version: "After JPX Launched", https://www.jpx.co.jp/english/corporate/about-jpx/history/02.html), the entry for March 24, 2014. ↩