ECONOMICS & MARKET TERMS 02

When Cash and FuturesDiverge

They sold stocks and bought futures.
Did they leave the market, or simply change their positioning?

01Same Label 02Four Combinations 03The Gap & the Total

01THE EVENT & THE QUESTION

Same Label, Different Actions

2026.07.06 · ACTUAL MARKET Same day · Same “institutional” label

CASH −₩1.47tn Institutional net selling

FUTURES +₩1.07tn KOSPI 200 futures net buying

Basis+10.82pt Total program trading−₩1.38tn

Based on Korea Exchange (KRX) trading by investor type and program-trading data. Trillion-won figures are rounded.

Did institutions leave the market,
or were they betting on a rebound?

ONE-LINE ANSWER

These numbers alone prove neither conclusion.

When cash equities and futures diverge, it means the analysis is not finished yet.

What Happened at the Two DesksReconstruction of 2026.07.06

Cash-equity desk
Stocks are put up for sale

Futures desk
Futures contracts are bought

This is where a premature conclusion appears

The same label does not mean the same investor

Illustrations simplify the aggregation structure for explanation

The two desks represent different markets.
Start by learning how to read them together.

02STRUCTURE & COMBINATIONS

How to Read
Both Markets Together

CASH

The market where actual shares or stock baskets are bought and sold now.

If you buy, you actually own the shares.

FUTURES

A contract on price changes in an index such as the KOSPI 200An index of 200 leading KOSPI stocks; a benchmark for futures, options, and many funds..

You gain exposure to moves in the KOSPI 200 without owning the underlying stocks.

Exposure measures how much the value of your position is affected when the market rises or falls.

Do Not Simply Add the Two Numbers

~~−₩1.47tn + ₩1.07tn = −₩0.40tn~~✕

They are aggregates from different markets, and futures buying can include both new positions and position closures. Rather than netting the amounts, read the direction and the context separately.

Four Combinations

The four cells below show the combination of directions reported in aggregate data. They combine many trades and do not represent one investor’s portfolio.

FUTURES SELL

FUTURES BUY

CASH
BUY

Cash · Futures
Directions diverge Needs more analysis

Cash · Futures
Both net bought Buying directions align

CASH
SELL

Cash · Futures
Both net sold Selling directions align

Cash · Futures
Directions diverge Case in this episode

The table reports only buy/sell direction. Whether futures buying represents a new position or the closing of an existing one requires open interestThe number of contracts still open and not yet closed. Changes in open interest help indicate whether positions are being added or unwound. changes and more detailed positioning data. Even when both markets point the same way, one day is not enough to confirm a trend.

Aligned directions are relatively easy to read.
Opposite directions create more possible explanations.

Cash Buy · Futures SellDiverging directions · Four possible explanations

Short-term hedge against risk in existing cash holdings Arbitrage using the price gap between cash and futures Buying individual stocks while staying cautious on the broader market An aggregate of trades by different investors

It could be a hedge. But aggregate data alone cannot prove it.

Cash Sell · Futures BuyThis episode’s case · Five possible explanations

Reducing individual-stock exposure while maintaining market exposure Closing an existing futures short—a short coverBuying back an existing short position to close it. It appears as buying in aggregate data, but it is not the same as initiating a new bullish position. Arbitrage using the price gap between cash and futures Expiry · rolloverMoving a futures position that is nearing expiry into a later-dated contract.-related trading An aggregate of trades by different investors

It can be a clue that positioning is turning more bullish. But futures buying is a clue to direction, not proof of intent.

Hedging

A trade that offsets part of the price risk in an existing asset with another position. An investor with a ₩10bn portfolio that moves roughly with the KOSPI 200 could do this:

Hold a ₩10bn portfolio→ Sell KOSPI 200 futures→ Reduce some downside risk

But opposite cash and futures directions alone do not prove hedging. You need to know whether the same investor made both trades and what position they held beforehand.

Once you understand the combination,
the next step is the distance between the two prices.

03The Gap & the Total

What Basis and Program Trading
Can Tell You

Basis is not a conclusion. It is the distance between the cash market and futures.

Basis = Futures Price − Cash Index

Contango means futures trade above the cash index.

Backwardation means futures trade below the cash index.

Cash index Futures price

A · CONTANGOFutures above cash

B · NARROWINGGap narrows

C · BACKWARDATIONFutures below cash

Do not read bullishness or bearishness from the sign alone. Basis reflects interest rates · dividends · time to expiry · cash/futures flows · arbitrage · rollovers all at once. That is why there is an order to reading it.

1Sign 2Change vs. prior day 3Recent range 4Arbitrage-program response 5Expiry · ex-dividend effects

Program Trading

A basket trade that places orders across multiple stocks as a group. KRX classifies it into arbitrage trades that exploit cash-futures price differences and non-arbitrage trades that do not directly target that spread. Orders are often executed rapidly through systems, but “a computer placed the trade” is not what defines program trading.

Arbitrage Program Trading

Trades that exploit the price difference between cash and futures.

When the spread moves outside its usual range, traders seek to profit by selling the relatively expensive side and buying the cheaper side.

Non-Arbitrage Program Trading

Basket trades that do not directly target the cash-futures spread.

ETF and index-fund flows, index tracking, portfolio adjustments, and rebalancing fall into this category.

“Non-arbitrage” does not mean “unprofitable.” It is simply a classification meaning the trade is not an arbitrage trade, regardless of its profit or loss.

Hypothetical example · Program trading on one day

Arbitrage +₩300bn

Non-arbitrage −₩800bn

Total program trading −₩500bn

A positive basis does not mean money flowed into cash-equity baskets. Even with arbitrage buying, larger non-arbitrage selling can leave total program trading net negative.

What to Check When the Two Diverge

Do the directions align or diverge?

If they diverge, the set of possible explanations expands immediately.

Do they represent the same actual investor?

Aggregate data cannot tell you. The category name combines many investors.

Is it new buying or the closing of an existing short?

You need changes in open interest and more detailed position data.

How did the basis change?

Look beyond the sign and focus on the direction of change.

Which was larger: arbitrage or non-arbitrage trading?

Also look at total program trading after the two are combined.

PRACTICE · HYPOTHETICAL DAY

KOSPI−1%

BasisWidening

Institutional cash−₩1.5tn

Institutional futures+₩1.1tn

Program · Arbitrage +₩0.3tn · Non-arbitrage −₩1.0tn · Total −₩0.7tn

Were institutions betting on a rise?

CHECK THE READING

CANNOT CONCLUDE 1These data do not tell us whether the “institutions” in cash and futures are the same actual investors. 2We cannot tell whether the futures buying was a newly initiated long or the closing of an existing short. 3The basis widened and arbitrage buying appeared, but non-arbitrage selling was larger, leaving total program trading net negative.

This is as far as the data take us: the institutional category was a net buyer of futures. We cannot say that flows across cash-equity baskets had also turned favorable.

Easy-to-Misread Statements

TRAP 01

“Foreign investors sold cash equities and bought futures. They were hedging downside risk.”

Unless you know that the same investor made both trades and what position existed beforehand, you cannot conclude that it was a hedge.

TRAP 02

“The basis widened into contango. Foreign investors are convinced the market will rise.”

Basis mixes interest rates, dividends, time to expiry, and arbitrage-related flows. A single sign does not map directly to investor sentiment.

But why can a single U.S. inflation or rate number change cash, futures, and FX positioning all at once?

EPISODE 3 How U.S. Data Reaches Korea

One-Line Glossary

INSTITUTIONS: KRX’s aggregate label for domestic institutional investors; the sum of several categories listed below.
Pension funds: Pension funds and other funds, including institutions such as the National Pension Service.
Financial investment: Trading by securities firms and similar institutions using their own capital.
Investment trusts: Investment trusts: public-fund assets managed by asset-management companies.
Private funds: Private-fund capital raised from a limited group of investors.
KOSPI 200: An index of 200 leading KOSPI stocks; a benchmark for futures, options, and many funds.
FUTURES: A contract that settles the price change of a specified index or asset at a set maturity.
Margin: Funds posted in advance to trade futures; only a fraction of the contract’s notional value is required.
open interest: The number of contracts still open. Changes provide clues as to whether positions are being added or unwound.
Long: A position that gains when the price rises.
Short: A position that gains when the price falls.
short cover: Buying back an existing short to close it. It is recorded as buying in aggregate data.
Hedging: A trade that offsets part of the price risk of an existing asset with another position.
rollover: Moving a futures position that is nearing expiry into a later-dated contract.
Basis: Futures price minus the cash index—the distance between the two markets.
Contango: A condition in which futures trade above the cash index.
Backwardation: A condition in which futures trade below the cash index.
Arbitrage Program Trading: Basket trading that exploits the price difference between cash and futures.
Non-Arbitrage Program Trading: Basket trading that does not directly target the spread, including ETF flows and rebalancing.
Program trading: Basket trading that places orders across multiple stocks. KRX reports it as arbitrage and non-arbitrage program trading.

Actual Market Case Used in This Episode

2026.07.06 · Institutional cash −₩1.47tn, institutional KOSPI 200 futures +₩1.07tn

A day when the two markets pointed in opposite directions. The basis was +10.82pt, indicating contango, while total program trading recorded −₩1.38tn of net selling. Institutions were net buyers in futures, but flows in cash-equity baskets remained tilted toward selling.

What This Case Actually Tells Us

Only that cash and futures moved in opposite directions. The data do not reveal which investors traded with what intent, or whether the futures buying represented new positions or position closures.

Sources & Data Notes

Cash/futures flows: Korea Exchange (KRX) trading by investor type (2026.07.06; institutional cash −₩1.47tn, KOSPI 200 futures +₩1.07tn).
Program trading: KRX program-trading data (2026.07.06; total −₩1.38tn).
Basis: calculated from the KOSPI 200 futures close and KOSPI 200 cash index (2026.07.06; +10.82pt).
Trillion-won figures are rounded.
The program-trading aggregation example on page 3 (arbitrage +₩300bn, non-arbitrage −₩800bn, total −₩500bn) and the practice-problem figures are hypothetical values created for explanation, not actual market data.
The comic panels and diagrams are simplified to explain the aggregation structure.

This material is educational content intended to explain economic and stock-market terminology and market structure. It is not a recommendation to buy or sell any financial product.

The Language of Markets · Episode 2 When Cash and Futures Diverge