[Derivative ABC] What Is the 'Gap Rate' in the Futures Market?

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[Asia Economy Reporter Park Jihwan] The 'discrepancy rate' in futures trading represents the percentage difference between the market price and the theoretical price. It is used to determine whether the futures price is overvalued or undervalued.

If the discrepancy rate is positive (+), it indicates that the market price of the futures product is overvalued compared to the theoretical price. Conversely, if it is negative, it means the market price is undervalued relative to the theoretical price.

The main reason for the occurrence of the discrepancy rate is the mismatch between buyers and sellers, that is, supply and demand.

The discrepancy rate arises from the market price, also called the current price, and the NAV (Net Asset Value), which is the net asset value per share. According to the law of supply and demand, the market price forms at a price higher than the reference price, NAV, causing the discrepancy rate to occur.

From an investor's perspective, buying when the discrepancy rate is negative (-) means purchasing at a cheaper price, while buying when it is positive means buying at a higher price. The opposite applies when selling.

In the first half of this year, there was a phenomenon where derivatives based on crude oil underlying assets were traded at prices overvalued by hundreds of percent (%). This phenomenon became prominent in March, when oil prices began to plunge sharply. The discrepancy rate for crude oil leveraged products widened to 400-700%, meaning investors paid 4 to 7 times the original price to purchase these products.

Above all, investors should exercise caution when investing in products with a high discrepancy rate. The exchange enforces a mandatory disclosure system for derivatives whose discrepancy rate exceeds a certain level.

The exchange requires disclosure of related information when the discrepancy rate exceeds 1% for domestic asset-based products and 2% for foreign asset-based products in Exchange-Traded Notes (ETNs) and Exchange-Traded Funds (ETFs).