Leverage: why only futures

Discussion in 'Trading' started by illiquid, Oct 28, 2006.

  1. I'm curious why highly levered products suitable for short-term speculation are virtually all futures, as opposed to just a leveraged vehicle that just tracks the "cash" or "spot" market. Is it true that necessity for a futures contract for a particular market develops first, then the speculators come in just for the liquidity and leverage they provide?

    The reason I ask is that, in the currency market, futures have been traded for quite some time, but now there is an ever growing spot market available for individual speculators. The difference here in forex is that the cash market can also be traded using extensive leverage -- 50:1 or more, as opposed to say equities. But since a leveraged "spot" instrument has never developed for other markets, is there any reason think that a spot market freely accessible to the public (as opposed to the closed interbank market that currently exists) will eventually push out futures?
  2. gkishot


    But let's say somebody offeres you a product which is leveraged spot oil for example shouldn't he still have to buy & store this product ( in our case oil ) for you?
    I cannot imagine it's possible as opposed to spot forex where keeping currency is relatively easy by a broker.

    The advantage of the futures is that nobody has to acquire real commodity.
  3. well...they eliminated the gold standard :) (my marketmaker recently offered cash market gold and silver and does not maintain inventory and there are not any contract expirations either)

    oil, natural gas, soy beans and other commodities would absolutly be awesome to trade on the cash market...

  4. gkishot


    I wonder how do they do it with spot gold and silver without maintaing their inventory?
  5. Well I should confirm that...But there is no talk of it on their forum... However, they brought in a venture capital firm to get some capital just before the offering...hmmm...maybe there is more cash needed than I thought.

    This is an interesting thread. I need to learn more...


    Michael B.

  6. gkishot


    Actually they might replace them with futures. That's why they charge interest on your account every day for storage.
  7. intriguing...(that would be a boring full time job for an institutional trader to maintain for them)