What does the futures curve tell you? (2024)

What does the futures curve tell you?

A futures curve is simply a list of prices at which one can buy or sell an asset in a given month. Here are some examples of curve readings for this year: Apr23 = 865, May23 = 885 and Jun23 = 905. The amount of tradeable dates will vary depending on a contract's liquidity*.

What does a futures curve show?

For example, a futures contract forward curve is prices being plotted as a function of the amount of time between now and the expiry date of the futures contract (with the spot price being the price at time zero).

What do futures contracts tell us?

A futures contract allows an investor to speculate on the direction of a security, commodity, or financial instrument, either long or short, using leverage. Futures are also often used to hedge the price movement of the underlying asset to help prevent losses from unfavorable price changes.

What does the forward curve tell us?

The forward curve is used to establish the mid-market swap rate as it projects the expected future floating-rate cash flows used to calculate the fixed rate (more info on interest rate swaps).

Why are futures a good indicator?

Futures look into the future to "lock in" a future price or try to predict where something will be in the future; hence the name. Since there are futures on the indexes (S&P 500, Dow 30, NASDAQ 100, Russell 2000) that trade virtually 24 hours a day, we can watch the index futures to get a feel for market direction.

Is contango bullish or bearish?

Contango markets may be viewed as neutral or bearish. That's because in a neutral market, prices gradually increase over time, due to inflation and other factors. However, a contango market may also be viewed as bearish—especially when there's a sharp discrepancy between spot prices and futures prices.

Do stock futures predict the next day?

The prices you see in the index futures market do not necessarily indicate where the index or stock will open in the next trading session. Use the Dow futures, S&P futures and Nasdaq futures to get a feel for where the market may be headed, not for exact predictions of pricing.

Are futures contracts bullish or bearish?

Leverage is the ability to control a large dollar amount of a commodity with a comparatively small amount of capital. Traders who purchase a futures contract are attempting to gain bullish exposure. On the other hand, traders who sell a futures contract are attempting to gain bearish exposure.

How to predict spy movement?

By analyzing key technical indicators, such as moving averages, trendlines, and support/resistance levels on SPY's price chart, investors can identify potential entry and exit points for individual stocks based on the relationship between SPY and the broader market.

Is the forward curve a good predictor?

Editor's Note: With VERDAZO proudly joining Omnira Software in 2022, this blog is being re-published on the Omnira Software website. In building a price forecast, any single indicator, including forward curves, is usually a poor predictor of future spot prices.

What is the difference between forward and futures curve?

A forward contract is a private, customizable agreement that settles at the end of the agreement and is traded over the counter (OTC). A futures contract has standardized terms and is traded on an exchange, where prices are settled daily until the end of the contract.

What is backwardation in futures?

Backwardation is when the current price of an underlying asset is higher than prices trading in the futures market. Backwardation can occur as a result of a higher demand for an asset currently than the contracts maturing in the coming months through the futures market.

Which is the best indicator for futures trading?

How do futures affect the market?

The rise or fall in index futures outside of normal market hours is often used as an indication of whether the stock market will open higher or lower the next day. When index futures prices deviate too far from fair value, arbitrageurs deploy buy and sell programs in the stock market to profit from the difference.

Why futures are better than spot?

Buying futures instead of spot can provide advantages like leverage, hedging, speculation, and access to more markets, but it involves higher risk and complexity.

Why futures is better than option?

Futures have several advantages over options in the sense that they are often easier to understand and value, have greater margin use, and are often more liquid. Still, futures are themselves more complex than the underlying assets that they track. Be sure to understand all risks involved before trading futures.

Is gold always in contango?

Hedging is attractive because gold is almost always in contango, which means the futures and forward prices are almost always higher than the spot price. The forward curve rises as a function of interest rates.

Is gold usually in contango?

Indeed, gold spends most of the time in contango. It is reflected by the positive gold offered forward rate. Given that it's a normal state, gold remaining in contango doesn't say too much about the market.

Why are futures more expensive than spot?

The main difference between spot prices and futures prices is that spot prices are for immediate buying and selling, while futures contracts delay payment and delivery to predetermined future dates. The spot price is usually below the futures price. The situation is known as contango.

What time are futures most active?

The most popular traded hours are 9:00am to 4 pm est. What Is Dow Futures Trading Hours? Dow futures trading hours are from 6 pm to 5 pm EST.

Do day traders use futures?

Day trading futures involves the purchase and sale of futures contracts within the same trading day, with the aim of profiting from small price movements. This practice appeals to traders for several reasons, including: Liquidity: Futures markets offer high liquidity, ensuring ease of entry and exit.

Are futures best for day trading?

As a futures trader, you can express your opinion long or short multiple times a day or week and you do not have to worry about day trading restrictions applicable to equities or the ability to take a short position in the market. So why miss out on another opportunity because of restrictions? Make a move into futures.

Are futures a leading indicator?

The assessment of index futures can be an important leading indicator of market sentiment. A high volume of long positions being taken on an index could mean that many traders are bullish on the market and believe the market the index is based on will increase in value.

How risky are futures contracts?

Futures, in and of themselves, are not any riskier than other types of investments, such as owning equities, bonds, or currencies. That is because futures prices depend on the prices of those underlying assets, whether it is futures on stocks, bonds, or currencies. Moreover, futures tend to be highly liquid.

Are futures a hedge?

While futures can provide a potential hedge for some situations, they also carry risks like potentially reducing the overall increase of your portfolio value or creating significant loss.