What is the difference between an index ETF and a futures contract on an index?
Although an index ETF and a futures contract may represent ownership of the same underlying index, there are more index ETFs available for indexes than futures contracts, especially for style, sector and industry categories. Futures contracts depend on continuous customer order flow, while few of the style, sector and industry indexes are characterized by continuous order flow. In addition, index ETFs trade in much smaller investment sizes than futures contracts. For instance, the S&P 500 SPDR trades at five times less than the corresponding futures contract. Of course, investors may also prefer the ease of trading a stock rather than a futures contract, which requires separate accounts and daily mark-to-market of gains and losses.
