How do the ASX200 Futures work?
Guys, Can you please give an explanation on how futures work and in particular the ASX200 futures. How is it calculated, how far forward the in the future the number is etc. Thanks Colin
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Answer
The ASX200 futures are a derivative of the underlying index and as the chart below illustrates they track the index extremely closely. The contract size is calculated by simply multiplying the index by $25 hence in the chart below its $25 x 6734 = $168,350. For the investor / trader this an extremely simple and efficient way to trade / play the underlying index i.e. for every 40-points the index moves you simply make or lose $1,000.
The March 2021 futures expire on the 18th of March at exactly the same price as the index hence arbitrage traders keep the futures price in alignment with the index i.e. if it rallies too fast traders sell futures and buy a basket of shares which closely represents the index and vice versa when it falls too fast, consequently worse case they can lock in risk free profits on expiry and hopefully sooner if sentiment swings rapidly in the opposing direction.
On additional influence on the futures contract is dividends – the futures price will take into consideration the impact of stocks trading ex-dividend between now and expiry. For example, if the index is trading at 6800 and the futures is trading at 6770 with a March expiry, then the differential is dividend related.
