Buying to profit from an expected rise in the index (Going Long)

Someone expecting the level of a particular index to rise over a given period of time can seek to profit by buying indices contracts. If correct in forecasting the direction and timing of the change in level, the futures contract can later be sold at the higher level, thereby yielding a profit. If the index level declines rather than rises, the trade will result in a loss. Because of leverage, the gain or loss may be greater than the initial margin deposit.

For example, assume it is now January, the March Mini NASDAQ 100 futures contract is presently quoted at 1480, and over the coming months you expect the index to rise. You decide to buy a contract by putting a margin (deposit) of US$2000.Further assume that by  February

the March NASDAQ Futures Index has risen to 1550 and you decide to take your profit by selling. Since each contract is US$20 times NASDAQ Index , the 70 index points profit would be $20 x 70 i.e. US$1400 . Suppose however, that rather than rising to 1550, the March NASDAQ had declined to 1390 and that, in order to avoid the possibility of further loss, you elect to sell the contract at that price. On $20 x NASDAQ index, the 90 points loss would thus come to US$1800.

For example, assume that in January you have indications that the Mini Dow Jones 30 Futures Index will fall over the next several months. In the hope of profiting you sell one contract of March Mini Dow Jones at a level of , say 10500. If by March , the level has declined to 10100, an offsetting    futures    contract    can    be

purchased at this level, realizing a gain of 400 index points making a total profit of $2000 ( 400 index points x $5).A loss would be realized if the level has moved in the opposite direction.