Fair value definition

Fair value has two meanings to investors.

  1. Generally, it is used to mean the value attributed to a stock by an individual investor or broker.
  2. In futures trading, it can refer to the predicted price of a market which is reflected in the cost to open a position.

In many companies, the fair value of stock can be subject to much debate among investors. Technology companies that show promise but not profit can have fluctuating fair values from different brokers and investors, for example.

The fair value of a futures trade will reflect whether the seller believes that the market is going to go up or down before the futures contract expires.

At IG, CFDs do not reflect this: the cost of the spread reflects the extra funding needed to keep the position open for the duration of the trade (and any dividend adjustments if you are trading equities).

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