How do the /ES and other traded index prices work?

Discussion in 'Index Futures' started by Newmoney24, Dec 21, 2012.

  1. How does /ES trade as its own product, isn't it in index so of 500 stocks? so how does it have its own price they can trade independently?

    -and wouldn't it then naturally be out of sync of the 500 stocks it index' from?
  2. The ES (like SPY, the ETF) is a traded product; it's price is set by whatever price it's traded at.

    But, as a future contract, it's also used as a tool to hedge stock portfolios (in relation to the S&P 500 index). This hedging activity keeps its price (more or less) in line with its theoretical, discounted future settlement price, which in turn needs to keep up with movements in the S&P 500 index...
  3. Simply put, it's a future contract. A bet at what S&P 500 will be like at the expiration date of the contract, not the current S&P 500 price.
  4. The Emini ES is not an index. It is a futures contract. Thus, it's called the Emini ES futures and its traded on the CME.

    It was created by the CME via the facade its for "small traders" but the reality is that the professional traders (e.g. institutions, hedge) are the primary users of it.
  5. I love threads like this. It's like a window into the minds of the uninformed.


    ES is a futures contract, settling to the cash value of the stock basket at expiry.

    Its fair value at any point in time reflects the carry of the basket to expiry, being, the value of the basket, minus funding, plus the present value of the dividends.

    But, it doesn't necessarily trade at fair value all the time.

    When it's off fair, basis traders make money.