Understanding Fair Value

What is fair value?

When weighed against movement in futures (agreements to buy or sell an underlying asset on a specified future date, at today's price), fair value is a good indicator of where stocks will head immediately after the opening bell.

Fair value is a technical measure of the correct relationship between futures and a stock index. The actual relationship between futures and an index is called the spread or the premium. Fair value remains constant throughout the day, but the spread is constantly changing because the futures contracts and the stocks that make up an index trade independently of each other.

Fair value is most often calculated for the S&P 500 , and large institutional traders use it to set up program (or computerized) trading. ...