How to invest in stock futures with low cost using synthetics

Synthetic future contract is a position taken by traders by combining the call and put options.With the combination of long calls and short puts a synthetic long future contract is created. To create synthetic short future contract combinations of short calls and long puts are taken.Here options must have the same expiry dates and strike prices so that for both the combinations futures position are identical.To succeed with good returns invest using highly accurate stock futures tips .

Time to consider synthetic futures:

Investors are often in deli ma whether to diversify into alternative investments. The futures industry itself does not motivate traders to make a leap. The risk disclosure clearly states that you may loose your entire capital and more when you invest in futures.This is far from attracting any traders interest towards it.

The alternative to this problem is to invest in options on futures. Option contracts are derivative contract which are used to hedge against future price fluctuations.It is of two types call and put option.Though options limit your risk to the amount you invest but they are extremely difficult to pick. Investors are provided with three options if they are going to purchase an option out/at/in the money. While selecting their choice they have to judge which one among these follows the underlying futures. Also the closer you want current future price at the money or in the money the more amount you will have to pay.

When futures seems to be scary a trader may loose more than he has expected and the option contracts which are most likely to succeed are expensive. In such a situation investors can turn for an alternative : synthetic futures. They combine the best of both worlds : they allow traders ti follow underlying futures as closely as possible to turn it to profit. They help to reduce the amount traders have to spend on in-the-money options and they have the capability to minimize risk to certain extent when used properly.

Pros and cons of synthetic futures:

Like in every future contract in synthetic futures also there is plenty of opportunity for loss. Though it cost less to place the position, traders are still exposed to the same unlimited loss which may occur under any future contract.Traders have to ask themselves whether it is more feasible to risk few dollars on the position or put up several thousands. On the basis of your answer the tools traders would use to protect themselves from losing it all in a futures position are the same tools they would use in a synthetic futures position : stop-loss orders, limit orders and protective options.

Conclusion:

Traders often face constant pressure to diversify their portfolios from newspapers, magazines, built is only worthed to do so if they possess such risk bearing capabilities. Those who are unable or unwilling to trade in futures, synthetic futures can offer them with same opportunity.

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