Index futures are derivatives of real indices, which look to the future to set a future price or try to predict where something will be in the future. Since there are index futures (S&P 500, Dow 30, NASDAQ 100, Russell 2000) that trade almost 24 hours a day, we can use them to get an idea of the direction of the stock market. Futures will move based on which section of the world is currently open, so the 24-hour market must be divided into time segments to understand which time zone and geographic region are having the most impact on the market at any given time. Futures track stock prices around the clock, while stocks only trade and track prices during the trading hours of the exchange they are listed on.
A stock futures contract is a commitment to buy or sell shares at a certain price in the future, regardless of their actual value at that time. The prices offered for futures contracts are based on market orientation for investors. Futures traders have the advantage of having a nearly 24-hour trading day and the ability to react quickly to news that occurs when cash market participants are tied. In addition, markets for complex events, or events where privileged information is likely to exist, tend to fall to attract sufficient liquidity.
Maintenance costs are the interest and storage costs that would be incurred between the current date and the expiration date of the futures contract if the raw material were kept in inventory. When viewing Squawk Box before the market opened, the scroll shows the change in the S&P 500 futures and the fair value that CNBC has calculated. When the term stock market futures is used, market participants usually refer to stock index futures. By taking advantage of the expected high prices in the future and the storage capacity of oil, arbitrators can push spot prices higher and futures prices lower. Prediction markets, also known as information markets or event futures, first attracted widespread attention in July 2003 when it was revealed that DARPA was establishing a policy analysis market to allow for negotiation in various forms of geopolitics risk, including economic and military scenarios.
Unexpected events—a war, a terrorist attack, a market panic—devastate markets precisely because no one saw them coming. In a prediction market, researchers point out, benefits are linked to unknown future events, and how rewards are linked to those events can arouse market expectations in many ways. Futures prices reflect market expectations with respect to future conditions of supply and demand for raw materials. Bottom Line index futures predict the opening direction of the stock market most of the time, but even the best fortune-tellers sometimes get it wrong. Some investors look into futures for clues as to which direction a stock index could move when markets open on a given day.
Stock futures are not so much a prediction as a bet. Your vision may be perfect but it can also be very out of place. The buyer of a futures contract must buy (and seller must sell) specified assets at contract price regardless of current market price at expiration date. Interpreting future prices is somewhat more complicated for storable commodities where current inventories are low compared to current consumption needs. Europe remains open and is trading for first two hours of US markets so during morning session there is still European influence.
However, by taking advantage of expected high prices in future and storage capacity of oil arbitrators can push spot prices higher and futures prices lower. The contract guarantees farmer good price even if market ends up flooded with products while buyer gets price he believes will generate profits.