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Difference between Futures and Fair Value

Difference between Futures and Fair Value

The Futures market is a great way to speculate on the future price of an asset. However, it’s important to understand the difference between Futures and Fair Value. In this blog post, we’ll explore the differences between these two concepts and discuss how they impact traders. We’ll also provide tips on how to use Futures to your advantage in today’s markets. Thanks for reading!

What is the Future Value?

Future Value is the amount of money invested will be worth at a Future Date, given a rate of return. The Future Value date is the date that Future Value will be reached. The assumed rate of return is the rate of return used to calculate Future Value. The assumed rate of return must be greater than the interest rate on the investment for Future Value to be reached. Future Value is important to consider when making investment decisions, as it can help to determine whether an investment is worth making. When considering Future Value, it is important to remember that it is only an estimate and that actual Future Values may differ from those estimated.

What is Fair Value?

Fair value is defined as the price that would be received by an asset holder to sell an asset, or the paid to transfer a liability, in an orderly transaction between market participants at the measurement date. Fair value is considered a market-based measure, not one based on an entity’s internal books and records. The objective of fair value measurements is to estimate what exit price market participants would use in transactions. Fair value can be measured using different valuation techniques, the most common being the market approach, cost approach, an income approach. Fair value is most often used in financial reporting but can also be used in fair value management and risk management. Fair value measurements are useful because they provide information that can help make investment decisions and assess performance. For example, if the fair value of a company’s stock decreases, that may indicate that the company is not doing as well as investors had thought. Fair value measurements are not perfect, however, and there are some limitations to consider when using them. For example, fair value measurements are based on estimates and assumptions that may be wrong, and they often reflect only short-term market conditions. Despite these limitations, fair value is still a helpful tool for investors, businesses, and other decision-makers.

Difference between Futures and Fair Value

  • Futures and fair value are two terms that are often used interchangeably, but there is a distinction between the two. Futures refer to contracts for future delivery of a commodity or security, while fair value is the price at which an asset would trade in the open market. In other words, futures are a type of derivative instrument, while fair value is a measure of an asset’s worth.
  • Both futures and fair value are important concepts in financial markets. Futures help to ensure that commodities can be bought and sold at a later date, even if prices have fluctuated in the meantime. This allows buyers and sellers to lock in prices and protect themselves from price fluctuations. Fair value, on the other hand, is a concept that is used to assess whether an asset is overpriced or underpriced. If an asset is trading at fair value, then it is considered to be neither overpriced nor underpriced.
  • While both concepts are important, it is important to understand the difference between them. Futures contracts are binding agreements to buy or sell an asset at a future date, while fair value is simply a measure of an asset’s worth.


If you are still unsure about the difference between futures and fair value, don’t worry. We can help clear things up for you. Futures contracts trade on an exchange and their prices are public. Fair values, on the other hand, maybe determined in a variety of ways including using option-pricing models. The bottom line is that if you need to know how much something is worth today, use fair value.

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