Lets say, I buy huge quantity of future contracts of a stock and as a result stock future price jumps +10% . Will actual stock price follow the future price? if yes, How does that work?
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A stock future is essentially a bet. You’re betting the stock will go up or down a certain amount at the time of expiry of your contract. Let’s say it’s at $300 right now and I think it’ll go to $350. I tell a guy hey I’ll pay you $20 now if you sell me your stock at $300 in 2 months time. 2 months goes by and the stock doesn’t go to $350. Say it goes to $310. I just lost $10. I paid money to have the luxury of taking that bet.
So no. Buying a large amount of futures, spiking the price, and expecting the actual stock price to move will not work as there is no actual real world value generated through that transaction to increase the net value of the actual stock price.
The entire futures market is just a bunch of people betting on what the stock price is going to be and a bunch of other people saying you know what, I’ll take you up on that bet. Now, obviously, they took the bet for a reason, so the prices between futures and the actual stock aren’t entirely uncorrelated. However. They are still just bets on future activity. The actual activity takes place with the stock itself which may or may not follow what the futures are predicting.
You might be wondering why they don’t track one to one. That’s primarily because when you buy a stock you’re buying something in this world. A part of a company. The majority of money moves through these actual assets. Money managers are investing in these real world assets that generate value in the real world to move the price of their stock as they see worthy. The futures market is speculation on what those moving the stock around think the stock is actually worth
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