Question on buying futures

Discussion in 'Trading' started by Warrior4g, Jan 29, 2008.

  1. this sounds stupid but i need to ask. when the stock market jumps at the end of the day you always hear that someone big was buying s&p or down futures. how does buying futures affect stocks?
  2. piezoe


    You are bating us. You should be ashamed of yourself.
  3. TheoCap


    because there is an inherent correlation between the cash market(stock index) and the futures, they will trade in tandem. If a descrepency arises in this relationship (i.e.- your example "a big guy buying futures"), arbitrageurs come in and push them back together in an attempt to make a profit(i.e.- your example, arbs traders would sell futures, pushing them down, and buy the cash market, pushing them up). The gap gets filled and the relationship continues...
  4. If index futures rise/fall too much above/below fair value, computer programs are triggered to buy the stocks that compose the index, while selling the futures.