Investing: Single Stock Futures
Single Stock Futures (SSF) allow investors to profit in both bull and bear markets and hedge against some of the weak performers in their portfolio. SSF are futures traded on individual stocks. Holding a SSF guarantees the sale of purchase of its underlying share upon expiry of its contract at an agreed price. As it derives its value from the price of its underlying security, it's assumed the SSF is similar to a warrant. However, there's a distinct difference; the SSF doesn't carry a strike price (the stated price per share for which the underlying stock may be purchased by the option i.e. warrant holder upon exercise of the option contract). This means that by holding a single SSF, investors either pay or receive payment for 1,000 underlying shares, which is its standard contract size, upon maturity. Because cash payment is received or made, actual physical shares don't change hands. This process is called a cash settlement. Before being permitted to trade SSFs, investors must maintain cash reserves in a trading account that is equivalent to 10% - 25% of the underlying stock's value. This 'initial margin' functions like a good-faith deposit, providing assurance those investors can meet their obligations if the SSF moves against their position (that is, the price falls after the SSF has been acquired). The low margin requirement to trade a SSF provides the opportunity for an investor to trade the same amount of stock that a traditional investor does but for less than one-fifth of the cost and compared to buying shares on margin, SSFs require less money to trade. So, SSFs free up more funds for investments. Meaning, lower margins indicates greater leverage and greater leverage allows investors access to more investment products with a smaller capital. Leverage is a powerful benefit but do remember that this means you could lose large amounts as well. It's important that investors monitor the performance of SSFs closely as the value can surge and collapse very quickly. Gains and losses are posted to the SSFs trading account at the end of each business day. This procedure, called 'mark-to-market', is performed by the futures broker that conducts the trading transactions. If performance of the SSF runs contrary to the position that was taken, additional funds must be added to maintain the minimum margin requirements and to continue trading the SSF. Failure to meet this margin would result in forced liquidation of the SSF contract. Many industry participants believe trading SSFs is straightforward. Buy or go 'long' on a SSF if you expect the price of its underlying share to appreciate. Should the price going down, then sell or 'short' the SSF. The ability to 'short' a SSF is often cited as its main advantage. This term refers to selling a security that the investor doesn't own. This is similar to regulated short selling (RSS) for selected stocks, which is slated to begin in the third quarter of the year, but there's one big drawback with RSS. The 'up tick' rule only allows investors to short the share if its last price movement was 'up'. This rule is designed to keep short-sellers from driving down the price of a falling share even further than it would go otherwise. SSFs are exempt from this rule as they can be sold 'short' at any time. This is why SSFs can be used in both bull and bear markets. During volatile periods, SSFs offer investors a quick way to neutralize risk by hedging. Bear in mind, a complete SSF trade consists of a buy and a sell transaction. Thus, the 'sell' must be followed with a 'buy' to close the position. If the contract is held till maturity, your position will be evaluated with the price of the SSF on that particular day. If your positions generate a loss, you'll be asked to top up your trading account. On the other hand, if a profit has been made, you're allowed to withdraw funds. Like other derivatives, trading in and out of SSFs is done very quickly, either within a single trading session or over a few days. One such strategy called spread trading, can be applied when the investor believes the price of one share will fall or rise in relation to another stock. By buying a SSF contract on a share that is expected to rise and going 'short' with a SSF on the other stock, the investor can profit from the spread between both securities. These strategies are supported by the low cost of trading. SSFs are extremely cheap at approximately $10 per transaction, which is much lower than general share transaction fees. While SSFs are not an overnight success, the development of today's investing environment calls for many different tools, which make it possible for the informed investor taking advantage of different market conditions. In conclusion, investors should take note of the SSFs benefits while being aware of its risks. Michael Russell Your Independent guide to Investing |
Other Trading Tips Articles
Dollar Cost Averaging – Automatically Dollar cost averaging (DCA) is a technique designed to reduce market risk through systematic purchase of securities at predetermined intervals and set amounts. If you participate in your company’s 401K plan, knowingly or unknowingly, you are practicing dollar cost averaging. Each pay period your company deducts a specified dollar amount from y ...Power Dynamics in Relationships Look for the true relationship that exists. And you can extrapolate it to once you have cognition of relational and behavioral elements. It's everywhere.When you see a photo of Angelina Jolie with Brad Pitt following behind her; guess who has the real power and upper hand in that relationship?She OWNS him in that relationship. Yes, ...Forex Trading – The Six Major Reasons Traders Lose Money In FOREX trading, there are six major reasons traders lose money. If you can avoid these pitfalls then you can join the minority of winners that pile up the big profits consistently.Here are the trading traps that will cause you to lose money:1. The Contrarian’s DiseaseYou should have a contrary opinion to the other Forex tr ...Bextra and Vioxx -- Tips for Arthritis Relief Without Them The recent withdrawal of Vioxx and Bextra from the marketplace, due to concerns over unwanted side effects, has many arthritis sufferers concerned. These drugs, which belong to a powerful class of non-steroidal anti-inflammatory drugs known as COX-2 inhibitors, are quite effective at fighting the pain and inflammation of arthritis. Unfortunat ...Currency Update – 5 Trades Correct Last Week, What Does This Week Hold With our currency update last week we had some great trades and while we were right, we also know that if we were wrong, our risk was small for all trades entered.We have had some fantastic profits last week but that’s the past, let’s look at the currencies this week and what we think will happen.Our view last week was the longer t ...Kelly Criterion for Stock Trading Size I’m sure some people know about Efficient Frontier, but I’m guessing that there are less investors that know about Kelly Criterion. So what is Kelly Criterion and who is Kelly? Kelly worked at AT&T, and published his original paper back in 1956. Its math is quite involved with communication and information theory, mostly dealing with probabil ...10 Sizzling Offers That Sell Like Crazy One of the best way to increase your sales is to offer your potential customers a special offer. It could be trial offers, discounts, purchase awards, etc. Below are ten sizzling offers you could use to sell your products like crazy.1. You could offer your potential customers a free sample of your product. If the sample proves what you cl ...5 Ways To Protect Your Bond Portfolio From Rising Interest Rates The Federal Reserve recently raised its target federal funds rate for the first time since March 2000. This could be just the tip of the iceberg, though, as many experts believe rising inflation and a strengthening economy will spur continued rate hikes for the foreseeable future.This is bad news for bond investors, since bonds lose valu ...Relationship Advice: Two Tips for Great Relationships Relationship Tip 1I've been blessed with working with thousands of couples over the last 25 years. Out of all those couples, it has been very very rare to see a situation where both people did not have their fingerprints on the mess.In other words, in most cases, both partners have their fingerprints on the mess before them. ...The EURO 12 member countries of the European Union adopted the Euro in 1999. (Denmark, Sweden and UK are using their own currency only). Investors used to invest domestically mainly, but with the Euro introduction more investors are now attracted to euro areas. Euro is a floating exchange rate, therefore market demand and supply controls the value of the ...Tips For Online Coin Auction Enthusiasts Coins are fascinating mementoes of history, sentiment and art. Coins vary in sizes, shapes and design. Art-lovers love to paint on it. Scientists love to tinker on its material, which are usually tough and long-lasting. Kids love to hear the ringing sound when it collides with their piggy banks and trinkets. Some people make galleries out of it. ...How To Become A Day Trader Like all businesses, day trading can be extremely lucrative. I suppose that is the reason why so many people want to become day traders. However, the risks are equally great and it is important to know what it takes to become a day trader.There are a few things you need to consider before you decide whether a day trader job is suitable fo ...10 Sizzling Ways To Ignite Your Profits 1. Create a memorable logo and slogan to brand your business on the internet. When they see your slogan or logo it will remind them of your business.2. Multiply your marketing all over the internet by creating free bonuses for other business' products. You just include your ad somewhere on the bonus.3. Offer to buy advertising spac ...Online Trading : Three Ways To Make More Money Online Many people today are rushing to get started in the investment game by opening online trading accounts with the largest brokers in the USA today. However, many people are also losing money each day due to either a lack of trading knowledge or merely having the gambling mindset when doing online trading.This article highlights there essen ...Currency Technical Analysis Part 3: Dow Theory – Bull and Bear Markets In previous articles, we’ve looked at the history of Dow Theory, and why it's the best theory ever, for currency technical analysis.The logic for spotting the big trends follows - and it’s these trends that we want to catch - as they yield the big profits!Hamilton identified three specific phases, in both primary bull markets, and ...More Men than Women Abuse Power Since there are fewer women than men in positions of power, it stands to reason that fewer women abuse it. But there is a more intimate reason for the absence of women in the scandals of abuse of power.It is a psychological fact of life that women are more concerned about their insides than about insider trading. Women are inner-oriented ...Crude Oil - Big Profits Are Being Made Are You Being Left Out? Have you missed out on the recent huge move in crude oil? If you have and you are wondering if crude oil will stay high then this article is for you.Here we will outline the factors driving crude oil prices and how you can get involved and make huge profits, even if you have never traded before!Black goldThere remains no via ...Energies Update – Did You Make Big Gains On Recent Break We Did! But Where not here to crow on about that, instead we want use this move as an illustration of how to time a trade correctly. In all markets when they go right great and sure we piled up big profits, but markets can make us all look stupid and they do regularly!Here we want to go over two ways to cut the risk of trading in energies (and other ...How You Can Work at Home With Currency Trading and E-currency Exchange Program If you are reading this you probably are looking to work at home. Everyone now a day wants to work at home and spend more time doing the things they love the most. Ever dream of spending time with your loved ones, taking vacations to the islands, or buying that car you always wanted.90% of people that try to work at home FAIL. Why do they ...Forex Trading - A Brief Introduction Forex trading refers to the buying and selling of the currencies of different nations, i.e., one currency is bought and another sold at the same time. A Forex deal involves profit when you sell a currency at a price higher than what it cost you to buy. Foreign Exchange market is the largest liquid financial market in the world in terms of the tu ...Forex Trading Systems Forex stands for a foreign exchange (market) where dollars, Euros, and yen, the main currencies of countries like the USA, Japan, and the members of the European Union, are traded daily. Simply stated, these currencies are bought and sold. The purchase value of these currencies, in comparison with each other, keeps fluctuating on a daily basis d ...Top 7 or Top Ten Articles Why do humans love to read top 7 or top 10 articles so much? Have you ever wondered? It is a known fact that very few article titles are as effective as Top 7 or Top 10 ways to do something or steps to achieve something. Titles like; “Top 7 Things to Make You Successful,” “Top 10 Halloween Costumers for 2005,” and “Top 7 Ways to Get the Girl You ...What is Link Trading and How Do You Trade? Link trading is the task of getting links to your site on other sites by trading.. umm.. links. This is done to get more traffic to you web site. Link trading creates more traffic in two main ways, increased search engine rankings and also from the traffic the links themselves generate from people clicking on them.Link Trading and Search ...The Seven Mistakes All Novice Traders Make and How to Correct Them We learnt the following the hard way! If any of these things applies to you, don't worry – there is an easy solution!MISTAKE ONELack of Knowledge and No PlanIt amazes us that some people expect to trade the stock market successfully without any effort. Yet if they want to take up golf, for example, they will happily take som ...Hackers Target Online Brokerage Firms In Latest Cyber Scam Every time the public thinks it has a handle on cyber crime, hackers come up with something new to throw into the mix. Reports this week name the newest targets for cyber criminals: online brokerage houses, which have lost millions of dollars in an online fraud that is apparently the latest in the world of hacker couture. Reports from o ...Moving Average Convergence Divergence ( MACD ) Charts The Moving Average Convergence Divergence charts, or MACD charts for short, are a technical indicator that is derived from the more simple moving average.The MACD charts are oscillating indicators, meaning that they move above and below a centerline or zero point. As with other oscillating and momentum indicators, a very high value indica ...Business Banking Basics One of the most important features of large and small business is to have good business banking. Good business banking will allow the money within your company to flow, and will greatly save you time and money. If you are a small business owner and are unsure about where to begin with business banking, then here are some basic tips to get you st ...Tips For Starting Conversation With A Stranger Starting conversation with someone you have just met is sometimes difficult for the majority of us just because we are not sure of what to say. But to be confident to make the first move in starting conversation with a stranger often boosts our spirits and helps us to become more diligent and contented with ourselves.First of all be confi ...The Scalp This term should be familiar to anyone who has bought prime tickets to a big game or concert at the last minute by making a deal with a guy who yells "Got two here!" in the stadium parking lot. The guy in the lot bought the tickets earlier at the lowest possible price. He has no desire to attend the event. His goal is to negotiate a deal at a hi ...Starting a Business – What is a Business Plan? So you have decided to start your own business - congratulations! It's a huge leap from letting someone else take care of taxes, accounting, payroll, inventory, and/or a myriad of other activities necessary to run a business. However, running your own business has its advantages, too. You get to be your own boss, set your own hours and days t ...
|
