Purchasing Share Price Index - Article Example

Purchasing Share Price Index February 6, 2007 Over the years, the Stock Market Industry was able to develop numerous ways to trade, investand provide promising business opportunities for individuals. Aside from simply purchasing company shares, investors can also earn through Covered Warrants, and Spread Betting, among others (Investing in other stock market instruments 2007). In the Australian Stock Exchange, investors may also do trading with Share Price Index Futures (SPI 200). Through SPI 200, investors are given an easy and effective way to trade the overall share market with just one trade. I. How one might buy a Share Price Index SPI 200 futures and options are traded by purchasing a cash deposit for each contract.

This is a requirement to be maintained in the investor’s trading account. The current initial deposit is at A$2,500 per SPI 200 contract held overnight A position that closes out before the day ends shall not be subject to initial margins (Introduction to SPI 200 trading). Investors further agree to pay extra daily margins on all “open contracts that show unrealized losses through unfavorable price movements”. Positions that remain open are cash- settled at the end of every trading quarter.

Cash-settled contracts are settled on expiry by either receipt or cash payments. The transaction amount represents the difference between the trading price versus the final settlement price. The Futures Exchange determines the calculation method of the settlement price. On the last day of the trading quarter, the SPI 200 contract is cash settled with the settlement price set as the closing quotation for the ASX 200 index (Introduction to SPI 200 trading). II. Why you might buy a Share Price index According to the Cklocke & Partners official website, SPI 200 trading is equivalent to trading a “balanced share portfolio that tracks the S&P/ ASX 200 index.

” S&P/ ASX 200 is Australia’s benchmark share market index, replacing the All Ordinaries Index (Introduction to SPI 200 trading). With this, SPI 200 investors are exposed to Australia’s top 200 companies without needing to buy shares in every company in the index (SFE SPI 200 Futures and Options). This benefit drastically minimizes the risk for every investor. Because of its being low-risk, SPI 200 is popular to investors who aim to make profits by anticipating market movement, either by selling high or buying low.

The SPI 200 is actively traded for “short-term trading, long-term trend following, hedging stock portfolios, portfolio substitution, cash flow management and anticipatory hedging, arbitrage, spread trading and directional trading” (Introduction to SPI 200 trading). SPI 200 day trading has further increased in popularity due to the Share Market’s volatility. This strategy gives investors dynamic trading opportunities without the risks of holding positions overnight. This further gives investors maximum control because with positions closing at the end of the day, investments are not held ‘ransom’ by overseas market action overnight.

(Futures Trading 2007) SPI 200 day trading works for beginners as well as for experts. And since it has a one-day lifecycle, there are no regular derivatives, giving it no initial margins. (What is the SPIDO? 2006) Further, the SPI 200 has lower brokerage fees than those typically found when trading in the underlying securities. It could be confirmed and executed in a matter of minutes and has a centralized clearance supported by a clearing guarantee (Trade SPI 200 index futures online with Xpresstrade 2006).

This definitely gives investors the edge in monitoring and ensuring the success of their investments. Reference List Australian Stock Exchange 2007. Retrieved February 7, 2007 from http://en.wikipedia.org/wiki/Australian_Stock_Exchange Benefits of index options. Retrieved February 7, 2007 from http://www.asx.com.au/investor/options/trading_information/index_options.htm Futures Trading 2007. Retrieved February 7, 2007 from http://www.cklocke.com/Day-Trades.aspx Introduction to SPI 200 trading 2007.

Retrieved February 6, 2007 from http://www.cklocke.com/Futures-Commodities-Markets.aspx Investing in other stock market instruments 2007. Retrieved February 6, 2007, from http://www.londonstockexchange.com/en-gb/pricesnews/education/firsttimeinvestors/investmentfactsheets/whyinvestinshares/investotherstock.htm SFE SPI 200 Futures and Options 2006. Retrieved February 7, 2007 from http://www.sfe.com.au/content/aboutsfe/brochures/006_spi200.pdf SPI 200 Index Features. Retrieved February 7, 2007 from http://www.macquarie.com.

au/au/corporations/acrobat/exchange_traded_options.pdf Sydney Futures Exchange. Retrieved February 7, 2007 from http://www.premiumdata.net/support/futuresdatabasenotes.php Trade SPI 200 index futures online with Xpresstrade 2006. Retrieved February 7, 2007 from http://www.xpresstrade.com/spi200_index.php What is the Spido? 2006. Retrieved February 7, 2007 from http://www.sfe.com.au/content/aboutsfe/brochures/006a_spido.pdf