I understand that future price will be little higher than Equity market price depending on the time remaining for expiry. Other than this difference Equity and future price will be having almost similar movement so their charts are identical. My question is which is determining which, is the future prices determined because of movement of equity price or is it vice versa ?
A simple pricing formula for Futures is Futures = Spot(equity price) + Cost of carry , and theoretically futures price should be more than equity price and should be the highest at the start of series and lowest at end of it.
Practically though, since most of the trading volume is on futures and options, most of the time futures determines how the underlying equity price moves.
Thanks for answer… But I think future is following equity prices. Because in the end future is settled on the basis of Equity price… To confirm this I downloaded equity and future prices for one day and checked, all major price movement is first seen in equity and then it is reflected in future price…
Nowadays, since F&O contracts are traded very high, the underlying (equity stock/index) is greatly influenced by the speculation in Futures and Options.
Yes Futures follow Equity Price as per the formula, but equity price’s trend is determined by the number of OI on Calls and Puts. Hence I think Nithin says “F&O determines the underlying equity price moves”
Yes agreed @AastroGuru
Why does this happens and not the opposite happens?
I’m not talking about the prices, but i am talking about the trends on chart…