The stock market is offering a wide array of trading options for all traders which can be done on a daily basis as well as within the physical confines of wherever the trading operations happen. For more adventurous and risk taking investors who would like to partake an optimum utilisation of their limited monetary resources, there is always the choice of having to use derivative instruments such as margin trading, financial spread betting, CFD trading and futures trading. The use of derivative instruments falls under the scope of speculative action and is therefore laden with much greater risks than the conventional market trading.
Let us compare the use of futures trading with financial spread betting. In the real sense, both are considered leveraged or geared financial products where traders simply purchase the margin money in order deal in a much higher shares quantity. This margin of money is ideally between the ranges of 15-20 % from the actual figure of the amount of shares they are trading in. For that very precept represents an opportunity for the trader to make profit should the market movement remain in consonance with the position that was taken prior to the trade.
Both of the derivatives will not attract any sort of stamp duty and that explains the reason why these instruments are very popular in the market. Traders can keep the profit as a whole which is the greatest advantage. The only drawback is that losses can be quite hefty since it cannot be offset against any profits made in the future.
Futures trading contracts on the other hand have an expiry time frame and the freedom to choose a position until the due date will allow it to run out or close any trade before the given date. Therefore, regardless of the given option there is no physical exchange of shares and that the futures contract price will be priced at a premium as compared to the underlying amount which is referred to as the funding charge.
Financial spread betting unlike futures trading contracts has an expiration period and the price has a given premium that is already integrated into the actual cost. Traders can close the position as they would normally do in the latter or simply keep them until the expiration and allow it to expire on its own. Moreover, financial spread betting dealings are solely between the market maker and the trader unlike in futures, which the contracts are overseen by the exchange.
The regulation in margined trading is mainly lesser in futures trading. Both derivative products don’t curtail any physical exchange of assets. However, their movements are mainly founded on the movement of the underlying.
In general, it is much better to complete financial spread betting and/or deal solely in futures trading only after strict understanding their fine points in clear details.