Index trading hours: cash vs futures pricing
Learning objectives
Distinguish a cash index from an index future and say when each one exists
Explain why an index CFD can be priced when the underlying market is closed
Anticipate the gap between the cash close and the next open, and what it does to a stop
The cash index only exists when the market is open
The cash index is the real-time calculation from What is an index: S&P 500, FTSE 100, Nasdaq: take the current prices of the constituent shares, weight them, produce a number.
Which means the cash index can only be calculated while those shares are actually trading. When the exchange closes, the constituent prices stop updating, so the index stops updating. It isn't paused or estimated. There simply is no new number, because there are no new prices to calculate one from.
For a US index that's roughly 14:30 to 21:00 UK time. For the FTSE, roughly 08:00 to 16:30. Outside those windows the cash index is frozen at its closing value.
Index futures trade nearly all the time
Meanwhile, index futures trade close to 24 hours across the trading week on their own exchanges.
A future isn't a calculation of current constituent prices. It's a contract about the index level at a future date, and it can be traded whenever the futures exchange is open, regardless of whether the underlying shares are.
So overnight, when the cash index is frozen, the futures market is live and continuously repricing on whatever news arrives.
The futures price outside cash hours is effectively the market's running estimate of where the cash index will open. Not a fact about where it is. A collective prediction, made by however many participants are awake.
Which one is on your platform
Brokers typically offer both, and the naming varies. Something like "US 500" alongside "US 500 (Dec)", or "cash" against a named contract month.
The cash index instrument is designed to track the cash index. During exchange hours it does exactly that. Outside them, since there's no cash index to track, the broker derives a price from the futures market adjusted for the difference between them. It carries daily financing and, as Indices CFD trading 101 covered, dividend adjustments when constituents go ex-dividend.
The futures-based instrument tracks a specific contract month. It has expected dividends and financing already built into the contract price, so it doesn't receive separate dividend adjustments. It expires, so it rolls, and as What are commodities and how are they traded? explained, rollover produces a step in the chart that isn't a market move.
Which should you use? For holds of days or less, the cash instrument is usually simpler: tighter spread during exchange hours, no rollover to track. For longer holds, the futures instrument avoids the accumulating daily financing, at the cost of managing rollover. Neither is universally better and the difference is small on short holds.
The gap
Here's the consequence that matters most.
The cash index closes at one level. Overnight, the futures market moves substantially on news from Asia, a central bank comment, or an earnings release after the US close. Next morning the exchange opens and the cash index is calculated from the first constituent prices, which reflect all of it at once.
The cash index opens away from where it closed. Not because it moved through those levels, but because it wasn't being calculated while the world changed.
Three practical consequences.
Your stop cannot protect you across it. Stop losses: where to set them and why established that a stop is a trigger, not a guaranteed price. A gap means price never traded at your level, so the fill is wherever the market opened. This is the single most important risk in overnight index positions.
Charts show a discontinuity. A candle chart of a cash index shows a visible jump between sessions. That's real information about how much repricing happened, not a data error.
The open is the most active period of the session. As What moves index markets noted, the first hour after the cash open is when the full market prices whatever accumulated overnight, which makes it both the most liquid and the most volatile part of the day.
Fair value explained
You'll encounter the term. Fair value is the theoretical difference between the futures price and the cash index, accounting for the interest cost of holding a position to expiry minus the dividends you'd receive in the meantime.
The practical use is that commentators quote futures as "up 40 points" pre-open, and the implied cash open is that figure adjusted for fair value. It's a small adjustment and worth knowing exists so you're not confused when the cash index opens somewhere other than where futures suggested.
What this means for your trading
Three rules follow directly.
Know which instrument you have open. Cash or futures. The financing, the dividend treatment and the rollover behaviour all differ, and none of it is visible until it appears on your statement.
Size overnight index positions for the gap, not for the normal move. How to trade news events made this argument about scheduled releases and it applies every night to indices. The relevant question isn't how far the index usually moves, it's how far it could open away.
Expect wider spreads outside exchange hours. You're being priced from a thinner futures market, and a stop sitting close to price is at its most vulnerable there.
Key takeaways
The cash index is calculated from live constituent prices and only exists while the underlying exchange is open. Outside those hours there is no new number
Index futures trade nearly around the clock, so an overnight index price is the market's running estimate of where the cash index will open
The cash index can open away from its close, and a stop cannot protect against a gap because price never traded at your level
Cash and futures instruments differ in financing, dividend treatment and rollover. Know which one you're holding