Futures and options are both derivatives, although their behavior differs slightly. Futures contracts, unlike options, are not subject to time decay and do not have a fixed strike price, therefore traders will have an easier time regulating price movement. Do futures experience decay? Futures have a significant advantage over options in this regard. Options are […]
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For instance, if prices in an economy have risen by 1% since the base year, the deflated number is 1.01. If nominal GDP is $1 million, real GDP equals $1,000,000 divided by 1.01, or $990,099. How do you use CPI to convert nominal GDP to real GDP? Multiplying by 100 produces a beautiful round value, […]
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Bonds are a lousy idea for inflation hedging in general. Why? Because bonds usually pay a modest fixed interest rate that is determined by the bond’s interest rates. When inflation outpaces or approaches interest rates, the future value of any bond profits is reduced. As a result, each bond payment will be valued less and […]
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Interest rates are one of the most important elements that influence futures prices; however, other factors such as the underlying price, interest (dividend) income, storage costs, the risk-free rate, and convenience yield are also essential. What factors influence futures prices? Futures prices take into account supply and demand projections, as well as production levels, among […]
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E-mini S&P 500 futures trade on the CME Globex trading platform from 6:00 p.m. U.S. ET through 5:00 p.m. U.S. ET the next day. When is the best time to buy futures? From 6 p.m. EST Sunday until 5 p.m. Friday, the futures market is open nearly 24 hours a day. There is a 5 […]
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Gross domestic product (GDP) has traditionally been used by economists to gauge economic success. If GDP is increasing, the economy is doing well and the country is progressing. On the other side, if GDP declines, the economy may be in jeopardy, and the country may be losing ground. A recession is usually defined by two […]
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Assume that excellent news arrives overnight from abroad, such as a central bank cutting interest rates or a country reporting stronger-than-expected GDP growth. Local equities markets are likely to climb, and investors may expect a higher U.S. market as well. The price of index futures will rise if they buy them. Nobody will be able […]
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Most people who follow the financial markets are aware that events in Asia and Europe can have an impact on the US market. How many times have you awoken to CNBC or Bloomberg reporting that European markets are down 2%, that futures are pointing to a weaker open, and that markets are trading below fair […]
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Question from a reader: Why does inflation make it easier for governments to repay their debts? During the 1950s, 1960s, and 1970s, when inflation was quite high, the national debt as a percentage of GDP dropped dramatically. Deflation and massive debt characterized the 1920s and 1930s. Inflation makes it easier for a government to pay […]
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Governments can fight inflation by imposing wage and price limits, but this can lead to a recession and job losses. Governments can also use a contractionary monetary policy to combat inflation by limiting the money supply in an economy by raising interest rates and lowering bond prices. Another measure used by governments to limit inflation […]
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