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barney
Member
What does it mean to say that futures offer highly geared returns because the initial margin payment is much smaller than the price of the underlying asset?
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didster
Member
Underlying: You invest 100 and price goes up to 105, you get 5 profit, or 5% return.
Futures: Say your margin is 20 for 100 underlying, same price movements, you get 5 profit or 25% return.
With gearing you get a bigger return (or loss) per initial capital injection.
Get the picture?
Futures: Say your margin is 20 for 100 underlying, same price movements, you get 5 profit or 25% return.
With gearing you get a bigger return (or loss) per initial capital injection.
Get the picture?
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barney
Member
Yes that makes sense, thanks very much 