Do Futures Prices Affect Spot Market Prices?
Hi, I’ve been hearing conflicting opinions regarding this subject matter. What I’m specifically interested in is the impact of non-commercial trading activity in the futures market (speculative investors/hedge funds etc) on the spot market prices? My belief was that a futures contract’s settlement price is the market’s expectations of the future price of said asset using current projections of supply/demand, various risk factors etc. The PnL for each party will be marked to market on a daily basis via the price discovery function. So come settlement date, there will be a gain/loss from both parties given the actual spot price at the time using actual market fundamentals. I can see how futures prices can affect spot market prices if we factor in the aspect that markets are not always fully efficient. Therefore people in the spot market will be affected by future projections of said asset. But there are figures being thrown around that the current spot prices for oil can be inflated by a
