Trading Basics No. 2 · Futures Trading Terms

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

Underlying Asset at a glance
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 ↗

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Frequently Asked Questions

What is an underlying asset in futures trading?

An underlying asset is the real thing a futures contract's price is based on. It can be a commodity, a financial index, a rate, or another defined measure. Traders often call it simply the underlying. It decides how the contract behaves and how it eventually settles.

What is the underlying asset for the ES futures contract?

The underlying asset for the ES is the S&P 500 index, a basket of 500 big companies. The value of the ES ties straight to that index. When those 500 companies move up or down as a group, the ES moves right along with them.

Does the MES follow the same underlying asset as the ES?

Yes. The MES and the ES both trace back to the S&P 500 index. When you trade the ES or the MES, you trade the direction of the S&P 500 itself.

Why does the underlying asset matter when trading futures?

The underlying asset drives how a futures contract behaves and how it settles. Gold futures track the price of gold, and crude oil futures track the price of oil. Every chart you trade stands in for something real. Know the underlying and you know what moves your contract.

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And that… is an underlying asset.

— GEORGE, MICROSTRADER · WATCH THE VIDEO ↗

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