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If you are interested in simple, effective investing, you cannot overlook the draw of SPI futures in the Australian Securities Exchange (ASX). Index futures enable investors to invest in hundreds of the largest stocks in the ASX without needing to physically buy the shares in every company. They allow savvy traders to take advantage of every side of the market, whether values are rising or falling. Additionally, working with index futures grants investors the option to gain substantial returns without paying the typical brokerage or transaction fees seen in more conventional trading.
The ASX 200 Index
If you’re new to the world of ASX futures, there are a few important terms you need to understand. Let’s break things down a little further to make them even clearer.
Index: An index measures how a group of stocks will perform in a particular sector. They are traded using derivative products, such as futures and CFDs, rather than directly with the ASX.
ASX 200: The ASX 200 index comprises the top 200 stocks in the Australian Securities Exchange. Some stocks carry more weight in the index due to the company size, so something as large as Commonwealth Bank has a greater influence on the index movement than something smaller, such as Bellamy’s.
Futures: At its core, a future is an investor’s agreement to wait until a certain date to sell or purchase an asset at a specified price. They are only valid for a particular period, and the agreement represents the investor’s obligation to buy or sell instead of simply having a right to do either.
Benefits of Index Futures
There are many benefits to engaging in investment through ASX SPI futures. Here are just a handful:
Increased Leverage
One of the top benefits of this investment strategy is taking a somewhat significant position for a relatively small cost. The return on your investment can be similar to the way that a small deposit on a house can still grant you a significant ROI as the property value increases. In the conventional purchasing of stocks, the maximum leverage available does not usually rise above 50 %. However, futures trading may grant you up to 90 or 95 % in leverage.
Flexibility
Not only are trading hours wide open during the week, but other elements also make working with futures extremely flexible. Rather than being subject to sudden movements in stocks throughout the day, index futures grant enough flexibility across the market to avoid being dragged down by severe market volatility in one company.
Lower Cost of Funding
Since an investor can immediately gain exposure to top equities in the Australian market through one instrument instead of scanning for opportunities one at a time, they do so at a greatly reduced cost.
Profit On Both Sides of the Market
Whether the market is trending up or down, investors can profit. This is highly different from other, more conventional investment products, as they only profit when the market is thriving. Using futures and options means that you can purchase when the trend is expected to move upwards and sell if things turn the other way. If desired, you can decide to “buy long,” holding onto the future for the long term, in hopes that the market will continue to rise over time. However, selling is always an option, so you can move quickly with the ebb and flow present in the ASX.
When it comes to trading ASX SPI futures, you have many benefits to look forward to. Lower brokerage fees, increased leverage and liquidity, lower funding costs, and opportunities to profit on both the up and down of market trends make this investment instrument a very attractive and profitable one.
