Futures markets are often used as a predictive tool for the stock market because they reflect investor sentiment about where prices are headed in the near future.
Here’s how that works:
What Are Futures?
Futures are contracts to buy or sell an asset at a future date for a predetermined price. They trade almost 24/7, even when the regular stock market is closed.
Why They’re Seen as Predictive
Trading Outside Market Hours:
Uniquely combining both Fundamental and Technical Analysis
Not yet a subscriber? Join now for FREE!
Receive our weekly tips and strategies into your inbox each week.
BONUS: Sign up now to download our 21 page Trading Guide.
Futures keep trading when the stock market is closed (e.g. overnight, weekends). If something happens (e.g. news, geopolitical events), futures react instantly — giving a sneak peek at how markets might open.
Reflect Market Sentiment:
Futures are traded by institutional investors, hedge funds, and traders trying to anticipate market direction. Their collective bets can be a proxy for broader sentiment.
Index Futures Are Key:
Futures on major indices are closely watched to estimate the opening direction of those indexes.
Example:
If ASX200 futures are down 1% before the stock market opens, it suggests traders expect the ASX200 to drop at the opening bell — and it often does.
Conditions:
Not always accurate: Futures predict short-term direction, not long-term outcomes.
Can reverse quickly: Pre-market futures can change significantly before markets open.
Driven by different forces: Futures are affected by interest rates, macro news, and global events.
Lauren Hua is a private client adviser at Fairmont Equities.
An 8-week FREE TRIAL to The Dynamic Investor can be found HERE.
Would you like us to call you when we have a recommendation? Check out our services.
Disclaimer: The information in this article is general advice only. Read our full disclaimer HERE.
Like this article? Share it now on Facebook and X!