What is Premium Means in Stock and Future market?

2023-06-05
Summary:

Understanding stock and futures premiums. Spot prices above futures indicate strong demand, while futures exceeding spot reflect supply concerns.

Understanding Stock and Futures Premium

Spot premium refers to the price of a certain commodity in the spot market being higher than the price of the futures contract for that commodity. Surcharge usually occurs in situations of tight supply or strong demand in the spot market, as buyers need to quickly obtain spot goods, and the limited supply in the spot market leads to an increase in commodity prices.


For example, assuming the delivery date of Crude Oil futures is June 2022, the current futures price is $50 per barrel. If the actual crude oil price on the spot market is $55 per barrel, then it is said that there has been a $5 premium in the crude oil spot market. This means that if investors want to purchase crude oil immediately, they must pay a premium above the futures contract price, which is the premium.


Spot premium is one of the important price indicators in futures trading, which reflects the impact of factors such as market supply and demand, inventory levels, and logistics costs on commodity prices. Investors can make corresponding trading decisions by observing the spot premium situation and understanding the market's expectations of the supply and demand situation and future trends of a certain commodity.


What does Futures Premium mean?

Futures premium refers to the price of a certain futures contract being higher than the spot price of the commodity. In the futures market, premium usually occurs when there are concerns about future supply conditions or when demand is strong.

futures

For example, assuming that the spot price of gold is $1200 per ounce, and the price of gold futures contracts is $1220 per ounce, the premium of gold futures contracts is $20. This means that if investors want to buy gold immediately, they need to pay a premium higher than the spot price.


Futures premium usually reflects the market's expectations of future supply conditions and the differences between the spot market and the futures market. For example, if the market expects a tight supply of a certain commodity, the price of futures contracts may be higher than the spot price. In addition, premium may also be influenced by factors such as market demand, inventory levels, and logistics costs.


【 EBC Platform Risk Reminder and Disclaimer 】: There are risks in the market, and investment needs to be cautious. This article does not constitute investment advice.

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Risk Warning: Trading Contracts for Difference (CFDs) are complex financial instruments and come with a high risk of losing money rapidly due to leverage. Trade on margin carries a high level of risk and may not be suitable for all investors. Before deciding to trade Forex and CFDs, you should carefully consider your trading objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial trading capital. We recommend that you seek independent advice and ensure you fully understand the risks involved before making any investment decision. Please read the relevant risk disclosure statements carefully before trading.
EBC Financial Group is a co-brand shared by a group of entities including:
EBC Financial Group (SVG) LLC is authorized by the St.Vincent and the Grenadines Financial Services Authority(SVGFSA),and the company registration number is 353 LLC 2020. with registered address at Euro House, Richmond Hill Road, Kingstown, VC0100, St. Vincent and the Grenadines.
Other Relevant Entities
EBC Financial Group (UK) Limited is authorised and regulated by the Financial Conduct Authority. Reference Number: 927552. Website: www.ebcfin.co.uk
EBC Financial Group (Australia) Pty Ltd (ACN: 619 073 237) is authorised and regulated by the Australian Securities and Investments Commission (Number: 500991). EBC Financial Group (Australia) Pty Ltd is a related entity of EBC Financial Group (SVG) LLC. The two entities are managed separately. The financial products and services offered on this website are NOT provided by the Australian entity and no recourse against the Australian entity is available.
EBC Financial Group (Cayman) Limited is licensed and regulated by the Cayman Islands Monetary Authority (Number: 2038223). Website: www.ebcgroup.ky
Business Address: The Leadenhall Building, 122 Leadenhall Street, London, United Kingdom, EC3V 4AB. Email Address : [email protected]. Telephone : +44 20 3376 9662
Disclaimer: EBC Financial Group explicitly does not participate in any cryptocurrency activities or offer Crypto Contracts for Difference (CFDs). Our financial services solely pertain to traditional instruments. Clients are advised that any references to crypto-related services using the EBC name are inaccurate and unauthorized. Any reference to past performance is not indicative of future performance. The information contained in this website is provided for reference only and does not constitute any investment advice.
Regional Restrictions: EBC does not offer any services to citizens and residents of certain jurisdictions including: Afghanistan, Belarus, Burma (Myanmar), Canada, Central African Republic, Congo, Cuba, Democratic Republic of the Congo, Eritrea, Haiti, Iran, Iraq, Lebanon, Libya, Malaysia, Mali, North Korea (Democratic People's Republic of Korea), Russia, Somalia, Sudan, South Sudan, Syria, Ukraine (including Crimea, Donetsk, and Luhansk Regions), the United States, Venezuela, and Yemen. For more information, please check out our FAQs.
Compliance Disclosure：The website can be accessed globally and is not specific to any entity. Your actual rights and obligations will be determined based on the entity and jurisdiction that you choose to be regulated.There may be local laws and regulations which prohibit or limit your rights to access, download, distribute, disseminate, share or otherwise use any or all of the documents and information published on this website.
Risk Warning: Trading Contracts for Difference (CFDs) are complex financial instruments and come with a high risk of losing money rapidly due to leverage. Trade on margin carries a high level of risk and may not be suitable for all investors. Before deciding to trade Forex and CFDs, you should carefully consider your trading objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial trading capital. We recommend that you seek independent advice and ensure you fully understand the risks involved before making any investment decision. Please read the relevant risk disclosure statements carefully before trading.
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