How does Spot regulate the Futures Market price?
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Well, the future will expire for the spot (or cash equivalent), so you can become “delta neutral” by buying the spot and selling the future or vice versa. Delta neutral means you won’t loose money if the spots price goes up or down. That means if the spot is cheaper or more expensive, you can do a trade to make “free money”, so the prices will stay in line as people will immediately start doing these trades if they can.
The catch is that futures don’t receive dividends, but also you trade future on margin (i.e. you don’t have to pay for it upfront) whereas you have to pay cash for the spot.
This means the future price will tend to be the spot price + interest on that amount until expiry – any expected dividends from the spot.
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