Closing the Gap - Futures Edition

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Futures & ETFs: Dynamic & Static Equivalency

Closing the Gap - Futures Edition

For this segment of Closing the Gap Futures Edition, Tom, Tony and Pete discuss Dynamic and Static Equivalency in futures and ETFs. When hedging futures positions with ETFs, it is important to understand the notional relationship between two different products.

We can calculate the number of shares to one futures contract by multiplying the Futures Quote by the Multiplier and then dividing by the ETF share price. On the higher end, we see /CL, /NG, and /SI with approximately 5000 shares to one futures contract. In the middle, /ZB and /GC sit at around 1000-1200 Shares to one future. Lastly, /ES and /NQ sit at the bottom with 500-800 shares to one future.

We can see the relationship between ETFs and futures by analyzing the shares to one future over the past four years. USO//CL and UNG//NG have steadily climbed in number of shares to one future. Whereas, QQQ//NQ and SPY//ES have more or less maintained the same shares to one future over the past four years. Some futures contracts see relatively consistent share equivalency, with limited fluctuation. However, it is important to understand that other relationships are more dynamic.

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