How do stock futures get a value assigned to them when we can’t even tell where a stock is going the next hour? And why/how do people buy them (financial product wise)?

Question

How do stock futures get a value assigned to them when we can’t even tell where a stock is going the next hour? And why/how do people buy them (financial product wise)?

In: Economics

Answer 1

No one can tell where a stock is going 1 millisecond from now, so why is buying a a future contract for some time that is not “immediate” so different? It’s not. To a degree, *every* stock purchase is a type of futures contract. Think about that and it may help. The *only* and I mean *only* reason you ever purchase a stock is because in the future you think the stock will be a higher value than your purchase value. The “future” in this case is any moment in time after your stock purchase.

Now the actual mechanics of each trade may be different between a market buy or a futures bet, but this is a good way to internalize it.