How to make money regardless of the whether market’s going up or down

Fsp Invest Team, 23 May. 2013

Tags: single stock futures, trading single stock futures, trading, shorting, how shorting works



A traditional stock market investor makes money when share prices rise and loses money when they fall. For years, the private investor had to accept this as the only way to profit from investing in shares. But, with the advent of single stock futures and other derivative trading instruments, the rules of investing changed forever. Here’s how you can profit from single stock futures regardless of the direction the market is moving.


Trading single stock futures and other derivative instruments has finally given the private investor the opportunity to profit from the market regardless of the direction it’s moving.
 
Here’s an example of how this works
 
Let’s say you’re a keen share trader, and notice ABC Bank’s shares have enjoyed a tremendous run. You like the shares for the longer term and you’re confident the shares will be much higher in five years time. However, right now you’re very confident the share price is due for a significant correction.
 
Years ago, you’d have been able to do nothing.
 
Today, “you simply pick up the telephone and tell your broker to sell (or short) 10 ABC Bank’s futures contracts,” explains the Ultimate Single Stock Futures Guide. Your broker will then sell 1,000 shares on the open market.
 
This means you effectively ‘owe’ the market 1,000 shares in the company. And you’ll have to ‘find’ 1,000 shares to honour the futures contract you’ve opened before the expiry.
 
You’re now ‘short’ 1,000 ABC Bank’s shares. And because you believe the price of the company is coming down, you also believe you’ll be able to buy back these shares at a better price than when you sold them.
 
This means, during the term of your futures contract, you’ll instruct your broker to ‘cover the short’ or close out the open futures trade.  Your broker will then buy 1,000 of these shares to fulfill your contractual obligation.
 
As long as the price of the shares is lower than when you initially shorted the share, “you’ll be in the money and show a profit,” says the Ultimate Single Stock Futures Guide.

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