can someone explain better, how this can be applied in trading and its benefits?
explaining out of experience will be much appreciated.
I trade S&P 500 futures because it allows me immense leverage relative to the alternative of investing in the S&P via an ETF. Also, when I am uncertain of the future direction of the equity market, but still comfortable with my long-term value stocks, I often times offset my market exposure by shorting S&P 500 futures based on a calculated ratio of my long exposure so as to be effectively market neutral. It’s not 1:1 given that my portfolio typically has a beta less than 1.
The markets are becoming more interconnected due to the growing global economy. If you are used to following the S&P 500, you can relate it to your currency trading as well. Great example is comparing stock market movements to carry trade currencies such as EUR/JPY and GBP/JPY.
When the stock market (or S&P 500) goes up you tend to see carry trade currencies go up as well. The stock market is like a proxy for risk taking. As traders and investors are willing to take on more risk, they borrow low yielding currencies such as the JPY and invest in higher yielding currencies. During the credit crisis when stocks tanked, the EUR/JPY and GBP/JPY did so as well due to risk aversion.
The correlation is strongest on longer time frames since intraday on a small scale may not follow each other as closely.
i think from what your saying it seems that s&p 500 futures can’t give us what we need in terms of the overall trend in intraday market.
I disagree that it can’t show intraday trends. Especially if you are looking at the S&P futures pre-market, you can often see investor bearishness / bullishness or maybe better put at this time: fear / greed factor. With more greed / bullishness comes more risk taking and more declines for the USD. The more data points that are intuitive and understandable that you can use the better. It wouldn’t make sense to ignore this signal.
i came accross and have read little about s&p 500 futures. so where do you get this signal and how do you apply it to your trading?
Lately it seems that when the SandP rallies, so does Eur/Usd