How far into the future is a stock future? How do stock futures work?

Question

I have been looking at the markets recently and most of the time, I see similar articles on how the market is going to do depending on how futures did. I am not that familiar with futures, but how far into the future do futures go. What I mean is that, would Mondays futures (10/3) be an indicator of what the markets are going to do on (10/3)?

Answer 1

Context is key here. Futures don't really have to do with a time in the future in this context.

Futures are a capital market (futures market), just like Stocks are a market (stock market). Both capital markets have the ability to affect each other. Up until 30 years ago there was a separate use for the futures market, but in the days since they are MOSTLY used for stock derivatives (financial futures are the most widely traded contracts since 1980, hugely eclipsing the commodity futures that the market was designed for.) So there is overlap and one affect the other, I'm not going to go into too much detail here but basically the futures market trades 24 hours a day, 6.5 days of the week and the stock market trades 8-12 hours a day, 5 days a week.

So when the stock market closes, the futures market is still running will react and effect the broad stock market.

Hope that gets you started in your research

Answer 2

Futures are an agreement to buy or sell something in the future. The futures "price" is the price at which you agree to make the trade. This price does not indicate what will happen in the future so much as it indicates the cost of buying the item today and holding it until the future date. Hence, for very liquid products such as stock index futures, the futures price is a very simple function of today's stock index value and current short-term interest rates. If the stock exchange is closed but the futures exchange is open, then using the futures price and interest rates one can back out an implied "fair value" for the index, which is in essence the market's estimate of what the stock index value would be right now if the stock market were open. Of course, as soon as the stock exchange opens, the futures price trades to within a narrow band of the actual index value, where the size of the band depends on transaction costs (bid-ask spread, commissions, etc.).