For example, the beta value is equal to 1, indicating that the fluctuation of the stock or stock portfolio is the same as that of the broader market. For example, the beta value is equal to 20% larger than the market, for example, the fluctuation of stocks or portfolios is 20% smaller than the market. By buying and selling stock index futures and adjusting the beta coefficient of stock portfolio, the systemic risk of portfolio can be reduced or even eliminated.
Another main use is that stock index futures can be used for arbitrage. The so-called arbitrage is to use the pricing deviation of stock index futures to obtain the risk-free expected annualized income by buying the index components of stock index futures and selling them at the same time, or short selling the index components of stock index futures and buying stock index futures at the same time. Arbitrage mechanism can ensure that the price of stock index futures is within a reasonable range. Once deviated, the arbitrageurs will enter the market to obtain the risk-free expected annualized income, thus pulling the price between them back to a reasonable range.
In addition, stock index futures can also be used as a leveraged investment tool. Due to the margin trading of stock index futures, as long as the direction is correct, it is possible to obtain high expected annualized returns. For example, margin 10%, buy 1 CSI 300 index futures, as long as the stock index futures rise by 5%, you will earn 50%. Of course, if you judge the wrong direction and the futures index falls by 5% instead of rising, then investors will lose 50% of their principal.