Rollover & basis
Why do equity index futures trade at a discount to cash indices when dividend distributions outpace financing costs?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
Equity index futures trade at a discount to cash indices when expected dividend payouts during the contract's life exceed the financing (interest) cost embedded in the cost-of-carry formula.
How it works
Since futures pricing subtracts expected dividend yield from the carry cost, periods of high dividend payouts relative to interest rates can push fair value, and thus futures, below cash index levels.
An example
ES trades below S&P 500 cash during high-dividend quarters.
Risk & limitations
Fair-value relationships shift with changing rates and payouts.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.