Question

Do futures prices contain information about future spot prices?

Do futures prices contain information about future spot prices?

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Answer #1

Future prices basically are the prices for buying and selling of an asset at some later date at a price predetermined today.Future contracts are basically standardised and requires initial margin, maintenance margin and variation margin.Future contracts are repriced everyday and evolves no counter party default risk as the clearing house is the counter party and traders deposit margin.

As per Pure Expectations theory, future price is equal to expected spot price on the delivery date i.e future price is an unbiased estimate of expected spot rate. Hence, as per theory the future price cannot deviate from future spot price leading to no profits in both long and short position. But there is always risk premium available which induces the traders to take up a position whether long or short. However , pure expectations theory depends upon estimates only.

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