Futures vs stocks
Buying futures is easy and requires less money than buying stocks. Buying futures can be for various reasons, eg hedging, speculation or for strategic reasons, eg. China purchasing futures contracts to lock in the price it will pay on the open market while filling its reserves..
If you open a futere contract of the German index the DAX, you open a contract which corresponds with an amount of stocks in the German index DAX of about 4853 x 25 = 121.325 euro. The multiplier 25 is a constant which is different for every futuremarket and 4853 being the actual price of the index.
No suppose you could choose to buy this amount of stocks directly on the market or open a future contract. What do you prefer?
Soros would know the answer, he would allways prefer the stocks. Why? Because the price of the future differs from that of the underlying index due to volatility, during time of the futurescontract and dividend expectations, the future price usually being higher than the underlying.
So suppose after opening an contract the volatility drops to zero (theoretical but for the purpose of the comparison) till the end of the fututre contract, the price difference between the index and the future is a loss, so even without changing prices at all. The buyer of the underlying index didnot loose anything, on the contrary: though no price gains, he gained divend from his underlying stocks.
daytrading
FDAX
If you open a futere contract of the German index the DAX, you open a contract which corresponds with an amount of stocks in the German index DAX of about 4853 x 25 = 121.325 euro. The multiplier 25 is a constant which is different for every futuremarket and 4853 being the actual price of the index.
No suppose you could choose to buy this amount of stocks directly on the market or open a future contract. What do you prefer?
Soros would know the answer, he would allways prefer the stocks. Why? Because the price of the future differs from that of the underlying index due to volatility, during time of the futurescontract and dividend expectations, the future price usually being higher than the underlying.
So suppose after opening an contract the volatility drops to zero (theoretical but for the purpose of the comparison) till the end of the fututre contract, the price difference between the index and the future is a loss, so even without changing prices at all. The buyer of the underlying index didnot loose anything, on the contrary: though no price gains, he gained divend from his underlying stocks.
daytrading
FDAX
posted by Carlo Giuntoni at 4:50 PM
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