Correlation between FTSE 100 and FTSE 100 Future

[slyone]

Hi everyone,

I want to trade a FTSE 100 futures contract. However, I want to know what the correlation between the future and the index is. I saw a Dow Jones future up by 17 points even though the index went down 6 points. I don’t know why this is???

Also, what expiry months would you guys recommend for the futures contract? Surely, the month furthest away is the best one to go for because it gives the best chance for a recovery, right?

Any advice most welcome

Zak

 

[sjalmond]

FTSE June

I trade the FTSE 100 Cash Rolling Daily through Capital Spreads. They admit that it's a mis-nomer - it's based on the next quarterly future (currently June). At the time of writing, the Cash is exactly 5.5p below the June. A week ago, it was 6.0p below, and there is less than a week to go until they stop offering the June (and start offering the September?) so presumably they'll get closer and closer together until the Options are redeemed at the end of June.

Clicking on the Cash chart button on Capital Spread's web-site loads the June chart. I wondered why there hadn't been any volume traded before April, and that 6.0p/5.5p difference caught me out a few times before I realised what was going on.

I don't know if that answers the question behind your question, but I hope it helps!


Steve

 

[Airthrey Capital]

The correlation between the cash price and the futures price of an index is the "cost of carry".
This involves taking into account the borrowing costs, and the amount of dividends payable between now (cash) and the expiry date (future).

Calculating this will give you a "fair value" as to what price the futures contract should be realtive to the cash price

For example, the fair value may be -5 (5 points less than the cash) , or it may be +2 (2 points higher than the cash)

If the future trades above or below its fair value, then that is a function of supply and demand (more buyers than sellers - more sellers than buyers).

 

[peterpr]

Hi everyone,
I want to trade a FTSE 100 futures contract. However, I want to know what the correlation between the future and the index is

There is only one FTSE100 futures contract. It is traded on Euronext-LIFFE and its base symbol is LX. It's only correlation to the FTSE100 index proper (which can't be traded because it is an index not a tradeable instrument) and which is part of its specification, is that at expiration its value is equal to the index proper. In other words the futures contract is a market traded derivative of the index.

References to trading the FTSE100 using anything other than this contract are in reality references to proprietory derivatives of either the index or futures contract. Until you clearly understand all that, you will be thrashing about in the dark so far as 'trading the FTSE100' is concerned.

Also, what expiry months would you guys recommend for the futures contract? Surely, the month furthest away is the best one to go for because it gives the best chance for a recovery, right?

Wrong

There can be good reasons for opening a trade on a far out contract (hedging forward obligations for example) but from a day/shortish-term swing trade perspective the big disadvantage of trading anything other than the current (ie nearest expiry) contract is lack of volume which means that, whilst there is more time 'for a recovery' as you put it, there is also more time for price to move against you with stops much more susceptible to serious slippage. It is rare for significant volume to be traded on the forward month much before a couple of weeks prior to current contract expiry.

 

[Windlesham1]

futures will also bite you in the bum as they are such low volume these days-anyone with a million quid can skew the market. I've lived through 'fat finger' trades where the future plummets 100 points. I watched the market take a 35 point tumble the other Friday-everyone's stops got taken out,as some g*t creamed the market. I would advise strongly against trading when market depth on both sides shows cum size of < 350.
Perversely today saw volume of 122,000 + but I guess that's a lot of rolling out. I have made money trading futures but my broker lost me a bundle,as they had no clear strategy and failed to use stops. futures as a long term play are fine as a hedge,but they can turn seriously wrong if you let them run.

 

[peterpr]

futures will also bite you in the bum as they are such low volume these days-anyone with a million quid can skew the market. I've lived through 'fat finger' trades where the future plummets 100 points. I watched the market take a 35 point tumble the other Friday-everyone's stops got taken out,as some g*t creamed the market. I would advise strongly against trading when market depth on both sides shows cum size of < 350.
Perversely today saw volume of 122,000 + but I guess that's a lot of rolling out. I have made money trading futures but my broker lost me a bundle,as they had no clear strategy and failed to use stops. futures as a long term play are fine as a hedge,but they can turn seriously wrong if you let them run.

Can't go along with all of that I'm afraid. Sure futures can be volatile but 'fat-finger' trades are nothing like as common or easy to execute as you suggest no matter how much money is thrown at them. If that million quid succeeds in bidding the futures price up a hundred points (or down) and the index proper doesn't follow suit pretty damn quick, there will be plenty more big money just itching to take the resulting arbitrage trades that will soon have the futures right back in line with the index and the original million quid looking a bit sick. Sure you can move the futures significantly with a million quid but not so the index , so you'd better be sure you know what the index itself is going to do first - unless you're playing both sides against novices of course - that happens all the time and the thinner the market the more so.

In my experience, though I don't trade the FTSE100 futures much anymore, you need to keep a close eye on an index/futures spread chart (The IB arbitrage meter will do) and both the current and forward contracts to trade index futures successfully on an intra-day time frame. That particularly applies to a rollover period - like now where volume is moving from one contract to the other. That plus a whole shed load of other things.

 

[cu20052003]

Hi, to All who are reading this thread

Fundamentals and Tech Analysis can't be wrong as the signals are always there. Well, if a person always have 2 meals each day, chances are that he will have a problem if he does not have 2 meals the next day! He definitely would, 1) Steal, if there is a food shortage, 2) Kill, if there are wild stock or farmed animal stock around and or even 3) Turn Cannibal, if given that there are already dead human beings available ( due to the hunger )! Each scenario being escalating in severity of the same situation!

You will not see the FTSE pass the closing point of 5,637 on Fri as I am writing this reply, my chap. But, please do reconsider using IG spreads as I do not find them trustworthy enough ( my criteria being very very strict ). But of course, for smaller betting sums like yours ( I presume and hope that is the case ) of not more than a few thousands perhaps, that would be OK. But not for those who spread trade/ bet into the hundreds of thousands. Spread trading/ betting as I have advised is worse off much worse off than gambling itself! My rules are 1) Never rollover, 2) Never do without an exit point, 3) Not more than 1 to 3 hours, 4) Surf the Tide and get the Ride, 5) Check out the brokerage's financial stability from a day to day basis - what is the use of trading if the brokerage is going bust soon?

Please do take note of the above mentioned if you would consider in the long run as spread trading can be a lucrative money earner for some who are advised by myself!

S K

Can't go along with all of that I'm afraid. Sure futures can be volatile but 'fat-finger' trades are nothing like as common or easy to execute as you suggest no matter how much money is thrown at them. If that million quid succeeds in bidding the futures price up a hundred points (or down) and the index proper doesn't follow suit pretty damn quick, there will be plenty more big money just itching to take the resulting arbitrage trades that will soon have the futures right back in line with the index and the original million quid looking a bit sick. Sure you can move the futures significantly with a million quid but not so the index , so you'd better be sure you know what the index itself is going to do first - unless you're playing both sides against novices of course - that happens all the time and the thinner the market the more so.

In my experience, though I don't trade the FTSE100 futures much anymore, you need to keep a close eye on an index/futures spread chart (The IB arbitrage meter will do) and both the current and forward contracts to trade index futures successfully on an intra-day time frame. That particularly applies to a rollover period - like now where volume is moving from one contract to the other. That plus a whole shed load of other things.

 

[cu20052003]

Volatile market conditions are good for the picking as well

It is when the good, reactive and quick can make GOOD PROFITS in a volatile market.

I am a tech analysis chap as well. The higher the up/ down trend the better for Futures!

Of course, for the spread trade/ bet guys, it is always good IF and ONLY IF they are in the correct direction, LOL!

S K

Can't go along with all of that I'm afraid. Sure futures can be volatile but 'fat-finger' trades are nothing like as common or easy to execute as you suggest no matter how much money is thrown at them. If that million quid succeeds in bidding the futures price up a hundred points (or down) and the index proper doesn't follow suit pretty damn quick, there will be plenty more big money just itching to take the resulting arbitrage trades that will soon have the futures right back in line with the index and the original million quid looking a bit sick. Sure you can move the futures significantly with a million quid but not so the index , so you'd better be sure you know what the index itself is going to do first - unless you're playing both sides against novices of course - that happens all the time and the thinner the market the more so.

In my experience, though I don't trade the FTSE100 futures much anymore, you need to keep a close eye on an index/futures spread chart (The IB arbitrage meter will do) and both the current and forward contracts to trade index futures successfully on an intra-day time frame. That particularly applies to a rollover period - like now where volume is moving from one contract to the other. That plus a whole shed load of other things.

 

[fat chance]

I saw a Dow Jones future up by 17 points even though the index went down 6 points. I don’t know why this is???

The index and the future open and close at different times. The difference between the two can be regarded as constant for intraday trading, and I think it changes by 10 points on a timescale of weeks.