Friday, December 2, 2011

Does futures contracts change the price of the underlined commodity trading?

For example a trader buys 20000 crude oil contracts, will the price of crude oil change, or futures contracts don't affect prices of commodity?|||The derivative price affects the underlying's price more when the underlying's market is closed.





For instance in the stock market, everyday before the open the traders and investors look at the S%26amp;P 500 future value, which is traded almost 24/7. If it's above the fair value, the stocks will likely open higher, so the traders will buy in advance driving the prices up, and viceversa if it's below the fair value.





When the market opens, the opposite usually happens, the derivative's price aligns to the underlying's price, because the latter is more liquid and the gaps between ask and bid tends to narrow down, driving the price to the actual market value.

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