The Basics of Synthetic Futures Trading
With a clear discussion on the potential for investment portfolios to diversify and tap alternative investment schemes the difficulty that lies with investors fear to deal with futures trading is always present. The fact of the matter is that the futures trading group does not necessarily encourage every investor to take part. It isn't particularly enticing when your risk disclosure clearly mentions that there is a possibility for losing your entire investment and more when you invest in futures.
Investors can turn to a safer alternative which is synthetic futures. Synthetic futures trading combine the best of all elements in trading, it allows you to follow the systematic trends of futures which in turn maximizes your profit and allows you to minimize your investment on a money option. Synthetic Futures is a great way to minimize investment risk when used appropriately.
Two types of Synthetic futures is available in the market namely, synthetic short and synthetic long.
Synthetic long requires dual transactions. You will need to purchase an at-the-money call option and sell the at-the-money put. In the metals market if silver costs $490 and you had an inkling that it will rise to $500 to trade the future you would need to have a put of the standard margin requirement which is significantly higher than the investment price. By selling the at-the-money put, which is the amount paid minus the collected premium your investment will save you a huge some of put out.
A synthetic short works backwards, You will have to create a purchase for the at-the-money put and then sell out the call.
If you choose to purchase using a synthetic long position it would cost you a small premium and if you decide on a synthetic short it wouldn't cost you anything. You need to ask yourself if your willing to put your investment at a loss of a few hundred dollars (synthetic long ) or thousands ( with synthetic short, your cash out will amount to nothing but are liable for total loss computations in the event of failed investment returns).
Investors can turn to a safer alternative which is synthetic futures. Synthetic futures trading combine the best of all elements in trading, it allows you to follow the systematic trends of futures which in turn maximizes your profit and allows you to minimize your investment on a money option. Synthetic Futures is a great way to minimize investment risk when used appropriately.
Two types of Synthetic futures is available in the market namely, synthetic short and synthetic long.
Synthetic long requires dual transactions. You will need to purchase an at-the-money call option and sell the at-the-money put. In the metals market if silver costs $490 and you had an inkling that it will rise to $500 to trade the future you would need to have a put of the standard margin requirement which is significantly higher than the investment price. By selling the at-the-money put, which is the amount paid minus the collected premium your investment will save you a huge some of put out.
A synthetic short works backwards, You will have to create a purchase for the at-the-money put and then sell out the call.
If you choose to purchase using a synthetic long position it would cost you a small premium and if you decide on a synthetic short it wouldn't cost you anything. You need to ask yourself if your willing to put your investment at a loss of a few hundred dollars (synthetic long ) or thousands ( with synthetic short, your cash out will amount to nothing but are liable for total loss computations in the event of failed investment returns).
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