When the future price will higher than forward price?
Seems something to do with interest rates…
Futures prices are higher than forward prices when interest rates and asset prices are correlated. This is due to the marked-to-market feature of futures, and since they are marked to market more often (in short time periods), they realize profits or losses earlier as well… Now, when assets are correlated with interest rates, as assets rise, futures and forwards gains HOWEVER, the forward is not marked to market, only the futures is… So the person holding the futures can realize a profit and REINVEST at a higher rate… while the person holding the forward cannot invest at a higher rate… Thus it makes it more attractive to hold futures when assetsare correlated with interest rates…
The opposite is true. If asset prices drop, and you realize a loss from the futures (again from the marked to market feature), you loss, and since you have to post margin when you constantly lose, at least you can borrow at a lower right…
Now think about the two scenarios if the asset was negatively correlated with interest rates.
When they are _ positively _ correlated, to be slightly clearer.
Thanks doobsmeister and magician!
good catch magician!
You’re welcome.