Futures

Zero sum game

For every buyer there is a seller, and for every long position there is a short position. This means that for every dollar that is made there is a dollar lost.

Open position

The vast majority of futures contracts do not result in the making or taking of delivery. Instead, open positions are exited by the buying or selling of futures positions in order to close (cover) the original position. For example, if you buy to enter a futures contract, an open position exists until that position is…

Leverage – futures

One of the big attractions of futures trading is leverage. Since the initial deposit is only a fraction of the contracts cash value, investors can realise hefty profits compared to how much they outlay. The reverse can also occur if the price moves against you. To reduce losses, most traders use stop losses. Rather than…

SPI

The Share Price Index Futures (SPI), which tracks the S&P/ASX 200 Index, is the most popular futures contract. To buy the SPI, a trader would outlay a deposit per SPI contract, which is a small percentage of the value of the contract. The value of the SPI 200 futures contract is $25 times the level…

Ask

This is the price at which you buy the contract, be it for shares, futures, options or CFDs.

Arbitrage

Arbitrage involves buying an asset in one market where the price is low, and at the same time selling the same asset in another market where the price is higher. The arbitrageur aims to take advantage of price discrepancies between the two markets with the view of profiting from this so-called risk-free series of transactions.