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Online Share Trading

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Trading the index

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Not applicable
Would I be correct in saying that buy/sell pressures have no effect on the index price since the index price is determined by it's constituents ?
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10 REPLIES 10
SimonPB
Valued Contributor
index yes .. indexd futures .. kinda ..
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john_1
Super Contributor
No its all about buying and selling presure... 1. its traded on its own. 2.. its price is determined by the same forces that govern an individual share...buying and selling..it is just the sum of those preasures.
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Not applicable
John, is that really the case, I mean the futures market might show some lag to movement on the underlying index, but does a futures contract itself result in a basket purchase of underlying equities? If not, then it can't possibly affect the market can it?
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john_1
Super Contributor
Actually it happens all the time.. and is a key driver of market movment... why does anglo move 3% a day well simple it does so because the index moves 3%... there are arbitrage traders that buy the underlying basket at the push a button the moment the index and the underlying diverge by more than 30/40 points... these guys can buy 200 contracts..on a good day and 20 -30 on a quite day..Simon sits near to one so he will be able to give you more acurate numbers...but the point is it happens all the time..that is why the futures that is heavly traded stays within touching distance of the cash market...
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Not applicable
Wow, tail wagging the dog. I would have thought it easier to just wag the tail.
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john_1
Super Contributor
well think about it if you want to move the market it takes 10 times less cash if you push the index future
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Not applicable
Misunderstood your post. :) It is the tail that gets wagged. Only Anton Rupert and Tannenbaum would have the resources to be able to manipulate the index.
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john_1
Super Contributor
nah the index gets push all the time..
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Not applicable
OK, so if the derivatives market has a boom, and a significant amount of small timers buy futures - driving up the futures price, thie index will follow because of the arbitrage traders? But if you took them out of the equation, then will the futures buyers have any influence on supply & demand of the basket?
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john_1
Super Contributor
Because of the fact the futures and cash have the excat same value at the moment of close out... there will always be arbitrage.
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