Investors use the futures market to predict whether the Australian sharemarket will open higher or lower on a daily basis. This can be achieved in several ways including reviewing offshore futures contracts, in markets like Europe and the United States to see how particular stock indices, including the FTSE and the S&P500 traded overnight.
In most cases, if the futures market comes off in these major markets, we would expect this to impact on our market. Hence the old adage of “If America sneezes, Australia catches a cold”. However, investors should be aware that this is a guide only and many different factors will impact the price action of equities and the broader equity market.
In Australia we are also able to trade the SFE SPI200 (SPI), which plays an important role in allowing investors and traders to gain exposure in relation to the Australian equities market. It’s important to note that futures are derivatives and as such their value is derived from something else. For example, futures such as the SPI derive their value from the S&P/ASX200 – so essentially share prices.
The SPI trades almost 24 hours per day allowing investors and traders to position themselves against adverse and positive movement in the US and European markets. So the SPI more than acts as a guide each morning but also a tool to protect investors portfolio’s should the need arise whilst the ASX is closed.
What futures info do you need?
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Consider looking at the SFE SPI200 as a first point of call followed by the relevant futures contracts for the Dow Jones, S&P500, FTSE and DAX.
To gain the big picture, you could also consider looking at Crude Oil, Gold, Asian Equity markets and world currencies. Commodity prices will also influence share prices, particularly in Australia. Almost every major commodity will have a futures market which many producers will use to hedge their exposure. So you can use this information as part of your analysis on a particular stock as well as the broader market.
Where can I access this info?
This information should be available from your current broker or data provider but also on numerous websites including each particular product’s exchange website. Please see them listed below.
Websites:
SFE SPI200 http://www.asx.com.au/sfe/futures_summary.htm
Dow Jones http://www.cbot.com/
S&P500 http://www.cme.com/
FTSE http://www.euronext.com/home_derivatives-2153-EN
DAX http://www.eurexchange.com/index
How accurate is this measure?
Futures should be used as a guide only and as part of your overall analysis.
There is not necessarily a right or wrong way to look at the market, it’s more about finding methodology you’re comfortable with and having a plan for the upside as well as the down side.
Matt O’Donnell
Disclaimers: The views expressed in this article are those of Matt O’Donnell and is not intended as general advice. This does not constitute a recommendation nor does it take into account your investment objectives, financial situation nor particular needs.
