How cash & future price is related

Cash & future price are co-related

Cash price is the base of Futures price. That is why futures market is also known as a derivative market. They are derived from spot price. Futures price usually fluctuates above or below the cash price, but the cash price sets the standard of any move in the
The futures market, because large Trading houses with low dealing costs will have an established arbitrage Channel. Their actions will force the future price back in line with the spot price.

This repetitive process keeps the price movements between the spot and futures markets largely similar.

Sometimes sudden movements away from the spot prices are usually caused by the activities of the big players known as Market-makers. These professionals are trading their own accounts and can see both sides of the market (i.e. The buy and sell orders).

Syndicates are in the process of selling or buying large blocks of shares. they know these large transactions will have an immediate effect on the market. They will also trade the futures and options contracts in order to offset or lower risk. This is why the future often seems to move before the spot.

Another example, Let’s assume that the market participants predict that there’s going to be a severe shortage of Gold in next quarter. It makes sense for the future price of Gold (today) to rise, reflecting the expected fall in supply.

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