Pronounced differences between stock index levels and fair value can open the door to arbitrageurs.

An Elementary Understanding of Fair Value vs. Futures Price - TheStreet

The term became a commonly used phrase in business journalism in the early s. Fair value is commonly used by investors attempting to predict how the markets will open for the day. Fair value is an integral element in the futures contract market. Futures contracts simply translate into bets on how much a stock or commodity will be worth in the future.

What Is the Difference Between Pre-Market Futures & Fair Value? | Finance - Zacks

When investors buy or sell a futures contracts, they are betting on the future worth of the commodities the contracts represent. Some markets even allow investors to bet futures contracts on the weather.

The futures market opened in at the Chicago Mercantile Exchange. Investors use futures in conjunction with fair value to predict and shield themselves from major market shifts. The stocks underlying an index, such as the Dow or the Nasdaq, have costs from buying and holding fees and benefits from dividends, neither of which show up in the index right away.

Fair value takes costs, benefits and interest into account, thus creating differences between index levels and fair values. Fair value has a slightly different definition when it comes to taxes. The fair value of publicly traded stock is identified by averaging the high and low selling prices over a specified number of trading days.

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What Does It Mean When the Dow Falls? Can I Invest in Unleaded Gas Futures? Pre-Markets Fair value is commonly used by investors attempting to predict how the markets will open for the day. Futures Fair value is an integral element in the futures contract market. Fair Value and Taxes Fair value has a slightly different definition when it comes to taxes. References 7 CNN Money: Fair Value for Dummies CNBC: Your Morning Market Weather Report CNBC: Fair Value -- CNBC Explains Investopedia: Arbitrage -- CNBC Explains Investopedia: Fair Market Value of Stock.

Resources 2 CNN Money: Popular Articles What Does It Mean When the Dow Falls? How to Calculate Market Price Using Supply and Demand Earliest Predictor of Stock Movement.

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