Advantages of Futures

Futures and options are investment products used by traders and investors, both professional and private. There are a number of characteristics, which distinguish futures and options from stocks, bonds or other traditional investment products, which may make them particularly attractive to private investors.

Leverage: the ability to undertake a comparatively large position for a very small initial outlay. Futures provide “leverage’. In other words, a small initial investment controls contracts worth a great deal more. This is because as a futures contract rises or falls, the unit price is magnified by the degree of leverage. This higher gearing creates greater profits if you correctly anticipate movements in the share price. However the risk of loss also increases proportionately if the futures price moves against you.

Leverage is a two-edged sword. It can create tremendous gains or losses, so it must be used wisely.

Reduced Initial Outlay: Futures and options enable a private investor to gain exposure to Australian Equities, Bonds and currencies at a fraction of the cost of traditional investments as you only pay a margin not the full value of the contract.

Making money from both a rising or a falling market: unlike traditional investment products which profit only when the market is going up, with futures and options you can also make money when the market goes down. Taking a position based on the market going down is commonly referred to as shorting the market. To achieve this in traditional markets may necessitate the borrowing of stock, which may incur additional requirements and costs.

Developing trading strategies: futures and options provide traders with the flexibility and opportunity to exploit trends and variations in the marketplace that are not possible with traditional traded products. By combining different options and/or futures, traders can create a wide range of potentially profitable scenarios regardless of the direction of the market.

Remember, this increased potential to profit may bring with it an increased potential for loss when trading futures and options. We recommend all investors seek expert advice from an experienced client adviser prior to participating in these markets.

Transparency.
The massive trading volumes and global public input in futures trading creates actual price discovery. This means the trading price, at that moment, is aggregate of the opinions of all the traders buying and selling that product. It is like a global auction, with people bidding from around the world.

Prices listed on the markets throughout the world are instantly transmitted all over the world. These prices are available immediately, and help every trader, and others interested in the price movements, make better- informed decisions.

Variety
Futures markets provide a tremendous variety of investment opportunities. There are the traditional markets like grains, metals and food. There are financial futures markets that trade contracts on all sorts of interest rates (Ten & Three Year Bonds), stock indices (SPI200), and currencies (AUD). Then there are the energy futures markets that provide opportunities in crude oil, natural gas, heating oil, and gasoline.

Transaction costs
Transaction costs in the futures markets are small compared to most other markets.

You pay commission on a per contract per side basis. Commissions start from as low as A$8.50* per contract per side + GST for trading on Australian markets. All costs are negotiable depending on volumes and frequency of trading. An on-line trading platform fee may also be charged.

*Conditions Apply.