(1) risk aversion function The risk aversion of stock index futures is achieved through hedging, and investors can achieve the purpose of avoiding risks by operating in the opposite direction in the stock market and stock index futures market. The risk of stock market can be divided into two parts: unsystematic risk and systemic risk. Nonsystematic risks can usually be minimized by diversification, while systemic risks are difficult to avoid by diversification.
(2) Price discovery function Stock index futures have price discovery function. Many investors bid in an open and efficient futures market, which is conducive to the formation of a stock price that can better reflect the true value of the stock. The futures market has the function of discovering prices because there are many participants in stock index futures trading, and the price composition contains price expectation information from all parties. On the other hand, stock index futures have the advantages of low transaction cost, high leverage ratio and fast order execution. After receiving new market information, investors are more inclined to adjust their positions in the futures market, which also makes the stock index futures price respond to the information faster.
(3) Asset allocation function Stock index futures are widely used as asset allocation means by institutional investors because of the low transaction cost of margin trading system. For example, 1 institutional investors who mainly invest in bonds think that the stock market may rise sharply in the near future and intend to seize this investment opportunity. However, due to strict proportion restrictions on investment products other than bonds, it is impossible to invest most of its own funds in the stock market. At this time, institutional investors can buy stock index futures with a small amount of funds, so as to obtain the average income of stock market rise and improve the overall allocation effectiveness of funds.