Stock Market News

Figure 4.1 more clearly illustrates the market participants in stocks. To a certain extent this figure also applies to the traditional futures markets but not in exactly the same way. The reasons for making these distinctions between market participants are these:

•  Investors can use SSFs as a vehicle for protecting their current
investment positions in the event of market moves against
their positions. In the past they could only do so by using stock
options or liquidating their positions.

•  Hedge funds (pending approval by regulatory agencies) can
use futures as their trading vehicle for speculative positions,
spreads, and hedges against existing portfolios rather than
being restricted to stocks themselves, which would require a
higher margin requirement.

•  Day traders in stocks can use SSFs for quick moves without
the need to post as much margin as stocks would require

•  Short-term traders can use SSFs instead of stocks, thereby gain
ing more leverage because of the lower margin requirement

This chart shows how different market participants in the stock market are oriented in different time frames.

Market Category

 

Investors	Traders	Day Traders
Pension funds	Hedge funds	Hedge funds
Individual investors	Individual investors	Individual investors
Mutual funds	Short-term traders	Floor brokers
Brokers	Mutual funds	Market makers
Retirement funds	Some banks	Arbitrageurs
Banks	Floor brokers
	Market makers

Long Term . . . Intermediate Term . . . Short Term . . . Intraday Time Frame

Short-term traders can use SSFs for short-term spreads and as hedges against existing short-term positions in stocks. This will be explained more fully in Chapter 9.

And there will likely be many more applications once traders and investors become comfortable with the functioning and behavior of the SSF market.

I The Intent and Use of Margin

As you know, margin is the "down payment" you make on a stock purchase. Whereas the margin on stocks is actually a down payment on the full amount, the use of margin in futures contracts is quite different. If you use margin for stocks, your broker charges you daily interest on the amount borrowed. Even though this doesn't seem to be an especially large cost, it does add up; and when combined with commissions, the total costs can often eat up the profits generated by short-term traders.

In futures trading, on the other hand, there is no daily interest charge. The margin money is, in effect, a down payment but one with no interest charge. This feature alone makes the SSF market very attractive to short-term traders.

preferred stock ~ futures brokers
stock picks ~ currency rates
stock market news ~ currency forex market
stock price ~ forex rate