How gearing works with single stock futures trading
Gearing means that you can use a lot less money to gain exposure to the share price movements of many more shares. And this is exactly how single stock futures
For example, if Company ABC is trading at R98 a share, you don’t have to find R98,000 to invest in 1,000 shares. Using single stock futures, you can gain the same exposure using a mere 10% of that, in other words R9,800.
For a small deposit (or margin) you gain control of a much larger number of shares.
The advantages of trading single stock futures over investing
The main thing attracting investors to the stock market is making money from buying and selling shares. But investing in ordinary shares means holdings onto shares for long periods of time.
And to make money from investing, you have to commit a substantial amount of money into the market too. Not only that, with your money tied up in shares, you can miss other opportunities as they come along.
As single stock futures are geared, you can potentially make big profits in a short period of time. And as you only have to put down a margin, you’re not tying up all your capital.
And single stock futures come with the bonus of being able to short sell. So if you think the value of a share is going to fall, you can also potentially profit from this move.
Of course, trading single stock futures comes with higher risks than traditional investing due to the gearing aspect. And this means that trading them isn’t for everyone. But by trading with a good risk management strategy means you can limit your potential losses.
So there you have it, why trading single stock futures could be for you.
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