Even if what you said is true... I doubt your part about "the tape leading futures"... it's of no use to a retail screen jockey.
I always had the same question: In which way is the spot market (real) linked to the future exchange... How is the price of the index, e.g. S&P, created?! Stocks are the ones that move (on buy/sell order) but they are being traded on 'spot' exchange. Now there is a 'spot index', and a futures index, and both must have the same price. As soon as there is a gap, it is being filled by arbitrage traders/algos, that take care of it. Is that right? How do you know?!
Not exactly. The fair value of the SP futures is based upon the SPX with an adjustment for dividends + some interest rate calculation based upon a risk-free return (like some T-Bill). Of course the futures can trade above or below fair value for a bit until the cash has a chance to catch up. It often looks like the futures contract "leads" the spot index. That's mostly because the futures market reflects prices quicker than changes in the index can be posted to the ticker. IF there is an arb opportunity in the spread, it exists only momentarily. I don't think it's possible for a retail screen jockey like us to take advantage. (I tried that years ago... no joy.)
No. They don't have the same price because there is a difference in costs associated with holding either instrument as well as the fact that the futures pays no dividend. I know because I have studied quant finance, forward pricing, market making, and microstructure. I have a degree in mathematics. This stuff is simple compared to really hard quant finance, but most quants will never speak about this stuff to the public because they are under contract, NDA, and will not discuss financial industry practices. There is far more to the spot vs forward relationship in index products than is widely understood. The bond market is intimately involved in both the market making and trading of these instruments.
There is no such thing as a futures index. Just a cash (or spot) index and the futures that is derived from it. One way to think about it is if say you planned on buying a new car. You could buy one right off the showroom floor/outside lot (spot) or put money down on a special order one (futures) locking in the price taking delivery at a later date. Although there is more to it than that. Much more.
Hey, yea I agree. What I meant was that the trading in either market can lead the index. Not that NDX will lead NQ. Like you say, the actual index ticker (what you called "the tape" ?) is a little slow. It's something like ~100ms refresh rate from the CBOE. Fast enough to build algos with, but it will generally lag price data you are getting on the tradable instruments - ES, SPY, NQ, QQQ, etc.
You should start looking up those terms on Google / Bing and use Elitetrader.com search in the upper right corner. Save the links in your Browser and Print out all the info you find...hopefully you'll find a lot of chart examples too and categorize it all in nice folders in your browser with hard copies printed in folders too. Essentially you'll be creating your own book of specific topics you're interested in along with finding a few books (there won't be a single book that covers all of those topics) involving topics specific to the trading instrument you're interested. Start with this forum search because there's a lot of great old threads on some of those topics by some members with a different perspective. Seriously, you're going to need to shine up your search skills and save / copy / print all the info you find because you mention a lot of topics. Seriously, combine all of those searches from Google, Bing, Elitetrader, Twitter, Stocktwits, Youtube, Tradingview, Amazon...you'll find enough info with all that in combo... You'll be busy for the next several years just researching. Yet, start first here considering you're already here and I wouldn't be surprise if all the above sources with send you someplace else on the internet. Research Tip About Elitetrader: If you want to keep your search to only here @ Elitetrader.com Google has a better index of info here at ET and you can check Google image index of the chart examples that may have been posted here in the past at ET because I found it much easier to zone in on a topic here at ET thru Google when searching for chart examples than here at ET alone... Google then sends me specifically to all the charts I want to view here at Elitetrader.com and I then just click on the chart that's interesting...it then takes me directly to the message post here at Elitetrader.com involving that chart. A former moderator here at ET showed me how to use Google / Elitetrader in combo to zone in on images / attachments posted here at ET...very useful because its very common to see people here at ET using their own terminology / slang phrases for the same topic / same price action in the charts... You can then send those people here at ET questions you have about specific topics. Hopefully, they're still around and respond to your questions. Yet, don't be shocked if you find informative chart examples posted many many years ago by someone here at ET that no longer uses the forum or they still uses the forum but via a different user name...you'll then need to dig a little deeper in your research. wrbtrader
I could not agree with you more SunTrader. I have reached that >> 10,000 hours expertise in one of the other fields and I can totally relate to that. However, I have had a handful of key advices, pearls, mentor suggestions (took 30 seconds), to "open the third eye" for me - that definitely accelerated the learning curve, so I partially agree with you on that... just looking for any sensible analysis/desiphering of price action. I just want to spend those 10,000 hours correctly, not beating my head against the wrong wall (that would be my fault, but I think it is correctable)
I 100% agree with you on those pieces of advices - having right way to search it. I am already trying that. In case someone has already invented the bicycle - I wanted to tap into that. Good example is the "Encyclopedia of Chart patterns" - by Bulkowski - that I own, that pretty much covers vast majority of knowledge you can find scattered on internet, but it's about chart patterns, not about the players monkeying around with it. My only practical follow up question for you would be this: What search term would you use @ET or in Google to find what I am looking for? "Decoding futures price action"? I have tried a few combination and have not really come to the type of info I was looking for...