Trading stock index futures when stock market is closed

[JackRab]

Can someone please explain to me how the price of the futures moves when the market of the underlying index is closed? Do the futures contracts end up in market orders when the market opens at 9am? If price moves away when the market is closed then how does it react when the market opens again with new orders but at a different index price level to the day before? So many questions, so little resources

If Asia and Europe are down 2% (during after hours US time)... what would you expect? Do you think the SP500/DOW spot will open unchanged? Or gap open about -2%...

So when you know that the spot index/stocks at open of regular trading will be down about x%, the futures will be as well, wouldn't it?

So during after hours trading in futures, those will track more or less the overseas markets... depending on relation/reason. So the futures will kinda frontrun the stocks. That's how people in your average newspaper's business section say... "stocks will open down about 1.7%"... because they look at what the futures are trading at that time...

Regarding your statement of Futures following the Index... I think for very liquid futures it's almost the other way around, but more of a 2-way situation. They follow each other, depending on what drives the market.

If there's a broad push down, futures will lead the spot index... because it's more liquid and easier to dump a shitload of futures... stocks will follow suit.
If there's a few big stocks leading the market, like big oil dropping because of oil price... possibly those stocks will lead the futures... the stocks drive down the spot index and futures follow quickly.

So it's not perse one leads the other.. it's more like an elastic band 2-way relationhip.

 

[biddrop]

But the futures price loosely follows the price of the index correct? So during market open and while the underlying shares are moving they will dictate the movement of the futures price?
Why can I not find a comparison graph showing an index against the price for it's futures?

The index 'price' is the portfolio value of the underlying stocks whereas the futures and ETFs are a traded product and the price reflects the current best bid/ask. One doesn't necessarily lead the other all the time. If a big trade hits one there will be a scramble to the remainders. Any charting software will be able to compare 2+ markets if you're subscribed to the data.

 

[Jimmywins]

If Asia and Europe are down 2% (during after hours US time)... what would you expect? Do you think the SP500/DOW spot will open unchanged? Or gap open about -2%...

So when you know that the spot index/stocks at open of regular trading will be down about x%, the futures will be as well, wouldn't it?

So during after hours trading in futures, those will track more or less the overseas markets... depending on relation/reason. So the futures will kinda frontrun the stocks. That's how people in your average newspaper's business section say... "stocks will open down about 1.7%"... because they look at what the futures are trading at that time...

Regarding your statement of Futures following the Index... I think for very liquid futures it's almost the other way around, but more of a 2-way situation. They follow each other, depending on what drives the market.

If there's a broad push down, futures will lead the spot index... because it's more liquid and easier to dump a shitload of futures... stocks will follow suit.
If there's a few big stocks leading the market, like big oil dropping because of oil price... possibly those stocks will lead the futures... the stocks drive down the spot index and futures follow quickly.

So it's not perse one leads the other.. it's more like an elastic band 2-way relationhip.

Oh wow that's really well put, thank-you! I have learned a lot.

 

[Jimmywins]

If Asia and Europe are down 2% (during after hours US time)... what would you expect? Do you think the SP500/DOW spot will open unchanged? Or gap open about -2%...

So when you know that the spot index/stocks at open of regular trading will be down about x%, the futures will be as well, wouldn't it?

So during after hours trading in futures, those will track more or less the overseas markets... depending on relation/reason. So the futures will kinda frontrun the stocks. That's how people in your average newspaper's business section say... "stocks will open down about 1.7%"... because they look at what the futures are trading at that time...

Regarding your statement of Futures following the Index... I think for very liquid futures it's almost the other way around, but more of a 2-way situation. They follow each other, depending on what drives the market.

If there's a broad push down, futures will lead the spot index... because it's more liquid and easier to dump a shitload of futures... stocks will follow suit.
If there's a few big stocks leading the market, like big oil dropping because of oil price... possibly those stocks will lead the futures... the stocks drive down the spot index and futures follow quickly.

So it's not perse one leads the other.. it's more like an elastic band 2-way relationhip.

Are there any ways to gauge the difference between in price between the two? For example a percentage difference to identify big price moves from the index's price? I guess the problem would be picking a starting point to base the % change on...

 

[Jimmywins]

Is it generally a bad idea to do trades in stock index futures when the stock market is closed? When stock market is closed, there is no reference point for the stock index futures. So, is it best practice to avoid trading stock index futures when stock market is closed?

You might face higher spreads outside market hours. I was reading the spread average for pepperstone and the spread could go as high as x10 when the market is open

 

[algofy]

You might face higher spreads outside market hours. I was reading the spread average for pepperstone and the spread could go as high as x10 when the market is open

don't trade the BS CFD futures, trade the real thing.

 

[JackRab]

Are there any ways to gauge the difference between in price between the two? For example a percentage difference to identify big price moves from the index's price? I guess the problem would be picking a starting point to base the % change on...

Why would you want to know? The main difference is because of interest and dividends.... interest rate is more or less a given, so you want to track dividends? Then you also need to know how much dividend is on which day etc... because those will change the spread.

Read this https://www.elitetrader.com/et/threads/where-to-get-fair-value-of-stock-index-futures.311719/

There is also something called the EFP, Exchange For Physical... which is traded, but OTC I think... it's basically the spread between future and spot.

 

[Jimmywins]

Why would you want to know? The main difference is because of interest and dividends.... interest rate is more or less a given, so you want to track dividends? Then you also need to know how much dividend is on which day etc... because those will change the spread.

Read this https://www.elitetrader.com/et/threads/where-to-get-fair-value-of-stock-index-futures.311719/

There is also something called the EFP, Exchange For Physical... which is traded, but OTC I think... it's basically the spread between future and spot.

Oh I see..
Well, I was thinking about creating a depth of market for an entire index in Excel. The end result would be multiple sums of the index at different % bands from the current price.
Does this sound feasible? Hehe....

 

[Overnight]

...
Does this sound feasible? Hehe....

You're overcomplicating it, methinks.

Focus on the price action of the future itself, and not the underlying. Do not try to find correlation, for that just muddies up your works.

(This is if you wish to trade just the future product. If you are using the main as a hedge or whatever, that is a different ball o' wax.)

 

[JackRab]

Yeah... KISS is the way to go... (keep it simple stupid).

You would probably have to put some decent time in to get your Excel sheet working... and then, I doubt it will have a significant impact.

Market depth has it's limitations, a lot is 'fake' and when HFT will pull their orders/quotes the depth isn't what you thought it would be...

I do find it useful to realize what is happening, why futures are moving... what is driving the market... and for that sometimes you need to know which component is moving.