What Is Underlying Asset? Futures Trading Terms Every Trader Should Know
Take the ES contract.
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Underlying Asset (also called underlying): The actual asset or index a futures contract's value is based on, which determines the contract's price behavior and settlement method.
The underlying asset for the ES is the S&P 500 index.
What Is Underlying Asset? In Plain Words
An underlying asset is the real thing a futures contract's price is based on.
Take the ES contract. It is not floating out there on its own. Its value is tied straight to the S&P 500 index, a basket of 500 big companies. When those 500 companies move up or down as a group, the ES moves right along with them.
Futures contracts reference an underlying commodity, financial index, rate, or other defined measure. Gold futures track the price of gold. Crude oil futures track the price of oil. The underlying asset is what decides how the contract behaves and how it eventually settles.
Understanding this matters because you are never just trading a chart. You are trading a proxy for something real. When you trade the ES or the MES, you are trading the direction of the S&P 500 itself.
Quick Facts
| Term | Underlying Asset |
| Also called | underlying |
| Category | Contracts & Mechanics |
| ES example | The underlying asset for the ES is the S&P 500 index. |
| Video | Trading Basics No. 2 on YouTube ↗ |
Related Terms
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Frequently Asked Questions
What is an underlying asset in futures trading?
What is the underlying asset for the ES futures contract?
Does the MES follow the same underlying asset as the ES?
Why does the underlying asset matter when trading futures?
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And that… is an underlying asset.
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