[Nitin Bhatia]

Hi,

Under ‘Portfolio reshuffle’ topic, one of the members has commented that “Most of the time cash price is decided from future price”.

Could someone please elaborate on this? Theoretically, futures price is decided from spot price. How does reverse of this happens practically.

Please answer the query as it is contradicting with the theory of derivatives.

Regards..

[Nitin Bhatia]

Dear market_newbie,
You have rightly said that future is decided from spot price.
Cash price is always a fundamental and future is derived from cash price, hence future is derivative.
In this regard you may watch Nitin Sir’s video on YouTube.
Regards

[Nitin Bhatia]

To
market_newbie
Smart Money mostly active in future/option.. because they know the direction of the stock/index and it requires less margin money..If their view is for long term then they buy in cash..Market not work totally on book/theory we know 2+2≠4 in market..
hope you understand
thank you

[Nitin Bhatia]

No,
There is proper practicle reason.
There r arbitrage funds, who trades with 0 risk.
They used to buy shares in cash and sell equal amount of shares in futures.
At the time of expiry there profit will (fut price- cash price).
Irrespective with any direction market may go, there profit is locked.
If fii buys futures implies gap between fut and cash increase which gives opportunity to these arbitrage funds.
Who can buy in cash and sell in future.
By that way in cordination cash price can be adjustable via derivatives.

[Author]

Posts