Picking Market Direction Using Futures

Submitted by Craig Strzelecki on 5 May, 2008 - 20:57

Picking Market Direction Using Futures
Futures markets have always been used by many investors to have an idea on how the Australian share market will perform daily

Futures markets have always been used by many investors to have an idea on how the Australian share market will perform daily. Knowing whether the market will open with high or low value everyday helps the investor to decide on what to do with his stocks. In Europe and USA market, offshore futures review is one of the several ways to predict the direction of the market. This method is used to monitor how stock indices such as S&P 500 and FTSE traded the night before and this will help the investors determine the opening value of the particular stocks indices.

It is a common expectation that Australian market will always be affected by the results of major markets. The impact of the futures markets coming off the major markets are expected to be intense. However, this needs not be taken seriously as it is just a guide. The more important thing to know is that the factors causing impact on the broader equity market and other equities vary.

Like other markets, it is also possible to trade SPI or SFE SPI200 in Australia. By doing this, the traders and investors are allowed to increase their exposure in the equities market in Australia. Keep in mind that the values of futures do not come as they are; they were derived from other things. This is in relation to the fact that futures are derivatives and are copied from something else like for instance, SPI and S&P/ASX200 share their prices basically because the values of SPI were just derived from that of S&P/ASX200.

The 24-hour trade of SPI allows the traders and investors to place themselves against the movements of European and US market, favourable and unfavourable alike. Thus, we can conclude that the SPI does not only work as guide, it also serves as a tool that would protect the portfolio of the investors when needed especially when the ASX is not operating.

The Important Futures Information you Need to Have

Why don’t you try considering SFE SPI200 as your initial basis and then look at the significant futures contracts for S&P500, Dow Jones, DAX and FTSE?

To get a clearer picture of it, you could also opt to consider the world currencies and the markets of Gold, Asian Equity and Crude Oil. Especially in the Australian market, the share prices are greatly influenced by the commodity prices. Many producers use the futures market of many major commodities to protect their exposure. Thus, in order to analyse the borader market as well as a certain stock, you may opt to use the information provided by the commodities.

Where Can You Find The Necessary Information about Futures?

You may ask your data provider or broker to give you the necessary information that you need. It will also be helpful to visit the sites below for additional information.

Futures Markets Websites:
SFE SPI200 http://www.asx.com.au/sfe/futures_summary.htm
Dow Jones http://www.cbot.com/cbot/pub/page/0,3181,1165,00.html
S&P500 http://www.cme.com/
FTSE http://www.euronext.com/home_derivatives-2153-EN.html
DAX http://www.eurexchange.com/index.html

Is this measure precise and accurate?

Once again, use futures only as your guide to analyse the overall performance of your market.

It’s not really necessary to get the perfect way of looking at the market, rather, concentrate on searching for the method that you would be comfortable to use. Moreover, it is also important to make plans on how you could deal with the up and down movement of the market.