The stock market is characterized by numerous terms and definitions that may sometimes be hard to understand. Among them is fair value, which in simple terms refers to the approximate value of all assets and liabilities of a company which may be used to consolidate its financial statements.

Fair value may also be defined as that point at which there is equilibrium for the price of a future contract. This is determined by putting into consideration the compounded interest as well as the dividends that may have been lost as a result of an investors decision to own the future contract instead of the physical stock. As such, it is deemed as the relationship between the futures contract as per the market index and the index value of that particular index.

Traders are usually very keen about fair value, especially when it comes to options and futures as part stocks in the market. This component of the prices of securities is calculated every single minute, during and even after the trading sessions in order to balance the values. As earlier mentioned, the equilibrium is calculated through the futures contract. The value is normally calculated at its most recent trading value.

When fair value is calculated in between sessions, the difference between the two extremes is normally very minute, especially because the factors can be taken care of technologically through the use of computerized trading. However, if the balances are not made immediately, they could end up making large gaps in-between.

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