Nasdaq is trading above 4000 points but why E-mini Nasdaq futures Dec13 (NQZ13) is only hovering around 3450??? What could have been wrong in the market or calculations? Is Sept13 contract at such a huge discount to the cash market? Is there any arbitraging opportunity to profit from the price differences?
Before exploring about the potential trading opportunities, I want to know what is Nasdaq Compositie Index and E-mini Nasdaq Futures contract.
According to wikipedia,
The NASDAQ Composite is a stock market index of the common stocks and similar securities (e.g. ADR, tracking stocks, limited partnership interests) listed on the NASDAQ stock market, meaning that is has over 3,000 components.
Then I looked for NQ contract specifications from CME website.
According to wikipedia again,
The NASDAQ-100 is a stock market index of the 100 of the largest non-financial companies listed on the NASDAQ. It is a modified capitalization-weighted index.
I made a blunder here. Ashamed to say that I trade NQ for such a long time but didn't know about the difference until today. This is probably due to the fact that I trade solely based on price action of a particular market without referring to either underlying instrument of the contract or fundamental information regarding the index.This applies to any indices futures trading which includes our very own FKLI and FBM-KLCI Index. My approach contradicts with many traders, who like to trade FKLI based on fundamental info of the 30 stocks in FBM-KLCI. They also like to compare FKLI and FBM-KLCI whether futures is premium or discount against the cash market. There is no right or wrong, as long as they are able to prove that their trading strategy is working and can produce consistent profits.