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How is the price formed?!

  • #21
  • Oct 10, 2019 5:57am Oct 10, 2019 5:57am
Quoting BubaYaga
{quote} I don't know how much of an effect it would have on the cash index and underlying stocks. Probably not that much as futures volume is dwarfed by cash volume. I meant their would be a spike on the futures, but even that would be less than you might think, as arbitrage algos would go into overdrive when futures price deviates too far away from the cash index price.
So, that would mean that there is a cash index price And a future index price ?!
I must say I thought and assumed, that there is only one index price.

Haven't the futures (as well as other financial instruments) solely been created to be able to secure one owns real positions, as stocks, or commodity purchases?!
How then come, that there shall be two different index prices?
  • #22
  • Oct 10, 2019 6:49am Oct 10, 2019 6:49am
Quoting Fx-Gamer
{quote} So, that would mean that there is a cash index price And a future index price ?! I must say I thought and assumed, that there is only one index price. Haven't the futures (as well as other financial instruments) solely been created to be able to secure one owns real positions, as stocks, or commodity purchases?! How then come, that there shall be two different index prices?
Futures usually trade at a premium to spot/cash as time until delivery (usually) has value. March 2020 futures will trade at premium to Dec19 ext. (Except in times of contango or backwardation).
The only way to actually trade the cash index would be to buy each of the individual stocks in volumes they are weighted in the index. There are cash index CFDs but these are essentially bucket shop instrument.
I believe you are right - futures, options, ect were originally created to be a form of "insurance" against undesirable price fluctuations.
  • #23
  • Oct 10, 2019 7:17am Oct 10, 2019 7:17am
Quoting BubaYaga
{quote} Futures usually trade at a premium to spot/cash as time until delivery (usually) has value. March 2020 futures will trade at premium to Dec19 ext. (Except in times of contango or backwardation). The only way to actually trade the cash index would be to buy each of the individual stocks in volumes they are weighted in the index. There are cash index CFDs but these are essentially bucket shop instrument. I believe you are right - futures, options, ect were originally created to be a form of "insurance" against undesirable price fluctuations....
Ok, that makes sense.
So it is, as I actually assumed: The futures trading exchange is an artificially created exchange,
with its very own volume, and it may react different to increase of its own volume / or news, than the actual index price (stocks it is based on) would.
Especially regarding the low timeframes.
  • #24
  • Oct 10, 2019 7:48am Oct 10, 2019 7:48am
I've found this video, that explains it quite well:
https://youtu.be/ngpDWsfiM-A
  • #25
  • Oct 13, 2019 1:23pm Oct 13, 2019 1:23pm
Quoting Fx-Gamer
Dkrock has vanished and deleted all his inputs... wow. However, its astonishing that Traders must always rely on the machines, that dictate us, what the correct 'averaged' price is. That's something that has not been able more than 40/50 years ago, when there has not been this technology /computers. Many complain about Huawei and whether their 5G technology is safe, or can track / spy on us. But why is everyone comfortable with this state of the art financial exchanges?! Who is building their computers, how are they connected in the real world ?!...
Hi... What did he say?
  • #26
  • Last Post: Oct 14, 2019 4:36am Oct 14, 2019 4:36am
Quoting Viktory
{quote} Hi... What did he say?
Oh, I cannot recap all what he said...
Just that the index price is made out of averages (formula) of the single stocks...
which is of course right, but I was actually more interested in the technical/functional background of it.
(I mean, people and brokers can tell you what they want, right...).
But now I've found out that there is a cash index and a futures index price, that are not linked, which in my opinion is very strange.
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