# Shares, Options, Futures, CFDs - what do you trade and why?



## Pager (4 March 2007)

We all trade to basically make a buck, but which markets/instruments do those on this forum trade and why?

All have there pros and cons but why do you favour a particular market over another, many may trade 2 or 3 or maybe all instruments but I would expect even these traders favour 1 market over the others.

I trade Index Futures and on a short term basis, very rarely hold past the close of any market, for me Index Futures are the simplest form of trading and I would go as far to say that trading these types of futures is a far more even playing field for all participants in the market.

Costs involved are very low compared to other markets, buying 1 contract on the Spi for example costs from $5 to $20 depending on the broker, that contract at current prices controls about $140,000, markets are liquid and spreads generally pretty tight, although slippage in some markets can be bad when they are moving quickly.

Cheers

Pager


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## Bronte (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*

*What do you trade and why?*

Great question Pager  

We trade the SPI Daily
For the following reasons:

Leverage.
Volatility.
Good liquidity.
Ease of execution.
Diversification.
Just as easy to Sell.
Zero counterparty risk.
Price transparency.
Low transaction costs.
We have specialised in 'Trading the SPI'


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## wayneL (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*



			
				Bronte said:
			
		

> *What do you trade and why?*
> 
> Great question Pager
> 
> ...



????????????


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## surfingman (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*

Only shares at the moment as only been trading for about 6 months, looking at gettting into options but etrade is taking there time to review my application which has been sent 3 weeks ago!!!!


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## Bronte (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*



			
				wayneL said:
			
		

> ????????????



Do you have a question?


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## wayneL (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*



			
				Bronte said:
			
		

> Do you have a question?



You mention diversification, yet seem to trade only one instrument. Not meant as criticism, but this seems more like concentration than diversification.


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## Bronte (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*

Still confused Wayne  
So what is your question?


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## wayneL (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*



			
				Bronte said:
			
		

> Still confused Wayne
> So what is your question?




You listed "diversification" as a reason for trading the SPI.

*di·ver·si·fi·ca·tion*      /dɪˌvɜrsəfɪˈkeɪʃən, daɪ-/ Pronunciation Key - Show Spelled Pronunciation[di-vur-suh-fi-key-shuhn, dahy-] Pronunciation Key - Show IPA Pronunciation
–noun
1.	the act or process of diversifying; state of being diversified.
2.	the act or practice of manufacturing a variety of products, *investing in a variety of securities*, selling a variety of merchandise, etc., so that a failure in or an economic slump affecting one of them will not be disastrous.

Granted, the SPI is an index of diverse equities, but the act of trading the SPI exclusively, doesn't strike me as diversification.

Don't worry, just being a pedagogue.


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## Bronte (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*



			
				wayneL said:
			
		

> You listed "diversification" as a reason for trading the SPI.



Yes I did and we believe that it is.
Still not sure why you have questioned this Wayne


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## wayneL (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*



			
				Bronte said:
			
		

> Yes I did and we believe that it is.
> Still not sure why you have questioned this Wayne



Nevermind, I'll never get an answer.


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## Bronte (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*

Brent Penfold book 'Trading the SPI'
On page 15  Brent *also * lists 'Diversification'
Under the heading: 'Why trade the SPI?'
Please read for yourself Wayne.
Here is your answer


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## wayneL (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*

(Sigh) Brent Who?

Look! I can accept the diversification point if trading the SPI is in ADDITION to trading other equities/instrument.

But trading one instrument, whether or not the constituents of that instrument are diversified or not, is not in itself diversification. All your risk is tied up in one single chart. This is the antithesis of diversification.


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## Bronte (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*



			
				wayneL said:
			
		

> (Sigh) Brent Who?



Brent Penfold
http://www.indextrader.com.au/


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## theasxgorilla (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*

I trade shares (long only, 0-60% leverage) and CFDs with a side account (25% of trading capital).

In the coming months I plan to branch out into options and let me tell you, I'm VERY excited.


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## Bronte (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*



			
				Bronte said:
			
		

> Brent Penfold
> http://www.indextrader.com.au/



Brent explains 'Diversification' very well in this book.
Well worth a read to anyone considering.....
"Trading The SPI"


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## wayneL (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*



			
				Bronte said:
			
		

> Brent Penfold
> http://www.indextrader.com.au/



Yeah I knew that, but was subtly pointing out that Brent is not the keeper of the trading gospels, just another guy who wrote a book. Having flicked through the book at Borders, I am confident that the point on diversification is either out of context or apocryphal.


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## Bronte (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*



			
				wayneL said:
			
		

> (Sigh) Brent Who?



So what was the meaning behind this?


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## cuttlefish (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*

Only Australian shares. Have dabbled with eto's a couple of times over the years. Last year spent time trying to understand them propertly, and did quite a bit of options trading, had mixed results though overall profitable and still currently have some open long dated positions, but I've decided I'm not that keen on options trading - too technical/mathematical for my style and not enough liquidity in the Australian market so dealing to much with the MM's.

Will probably only use them as a shorting instrument or for specific situations.  However the bit of options trading that I did made me grasp concepts that are beneficial to the equities trading/investing and will also be helpful when I do encounter situations where I want to use them.

Have no interest at all in CFD's or warrants.


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## theasxgorilla (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*



			
				wayneL said:
			
		

> All your risk is tied up in one single chart. This is the antithesis of diversification.




If there are 200 constituents the likelihood of a single exchange affecting eventing causing all of them to fall out of bed is pretty slim.  But if you were in a single constituent, like for example NAB during the traders scandal in 2004, you would have really felt the pain.

You don't tie risk up in a "chart"...no matter what you trade there is always an underlying reality eg. a commodity, a currency, a company.


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## Bronte (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*



			
				theasxgorilla said:
			
		

> If there are 200 constituents the likelihood of a single exchange affecting eventing causing all of them to fall out of bed is pretty slim.  But if you were in a single constituent, like for example NAB during the traders scandal in 2004, you would have really felt the pain.
> 
> You don't tie risk up in a "chart"...no matter what you trade there is always an underlying reality eg. a commodity, a currency, a company.



Yes agreed theasxgorilla, and very nicely explained.


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## wayneL (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*



			
				theasxgorilla said:
			
		

> If there are 200 constituents the likelihood of a single exchange affecting eventing causing all of them to fall out of bed is pretty slim.  But if you were in a single constituent, like for example NAB during the traders scandal in 2004, you would have really felt the pain.
> 
> You don't tie risk up in a "chart"...no matter what you trade there is always an underlying reality eg. a commodity, a currency, a company.



Gorilla

Now we're getting really pedantic: "Chart" = synonym for "instrument". I thought that bleedingly obvious.

Now granted that price shocks are cushioned because of the diversification within the index. I have already pointed this out myself so we are regurgitating old points here.

By this argument, buying only BHP is diversifying because it activities are across many sectors... oil, gold, nickel, gas whatever. The truth is that your not.

I'm not saying this is a bad thing or a good thing, just that you are not diversified in the true sense. Your risk is in the general sentiment of equities and you are leveraged. Need we look any further than last tuesday for this point to be glaringly obvious... all world indices tanked together.

Trade the SPI, Cotton, Oil, Gold, Soybeans etc. and you are genuinely diversified.


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## wayneL (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*



			
				Bronte said:
			
		

> So are you now in agreement?



NO!

This is futile!

Ciao


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## theasxgorilla (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*



			
				wayneL said:
			
		

> Trade the SPI, Cotton, Oil, Gold, Soybeans etc. and you are genuinely diversified.




Diversification (to me) isn't an absolute.  You can be more or less diversified.  I would say that trading the SPI is more diversified than trading BHP.  But trading BHP is more diversified than say, MCR.  I know someone who trades only the S&P500 and this presents sufficient diversification for him.


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## Bronte (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*

To be *fully * diversified you probably require to own:

Property
Shares
Cash


Then to go overseas and own:

Overseas Property
Overseas Shares
Overseas currency


Don't stop here:

Invest in Real Estate on the moon
Luna shares
Moon rock


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## theasxgorilla (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*

...and you can't take money with you so you should also be Jewish, Muslim, Christian, Hindu, Buddhist


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## wayneL (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*



			
				theasxgorilla said:
			
		

> Diversification (to me) isn't an absolute.  You can be more or less diversified.  I would say that trading the SPI is more diversified than trading BHP.  But trading BHP is more diversified than say, MCR.  I know someone who trades only the S&P500 and this presents sufficient diversification for him.



Non diversification (my definition for the sake of this point) may not be a bad thing.

There are a lot of factors involved. If I was exclusively day trading like the Brontemen are, the SP500, or the SPI, or the Dow, HS whatever is absolutely fine all on its own. Some are even comfortable swing trading one instrument.

Absolutely nothing wrong with that.

Even using the futures as an index fund is fine as it offers diversification within the index.

Nothing wrong with any of these. But as a *"trading instrument"*, you are not diversified. Subtle, but important difference.


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## Bronte (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*



			
				wayneL said:
			
		

> Non diversification (my definition for the sake of this point) may not be a bad thing.
> 
> There are a lot of factors involved. If I was exclusively day trading like the Brontemen are, the SP500, or the SPI, or the Dow, HS whatever is absolutely fine all on its own. Some are even comfortable swing trading one instrument.
> 
> ...



So what was the point of:

????????????????
Post #3


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## wayneL (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*



			
				Bronte said:
			
		

> So what was the point of:
> ????????????????
> Post #3



You stated you trade the SPI for diversification.

You are not diversified in the context of your method.


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## professor_frink (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*



			
				Pager said:
			
		

> We all trade to basically make a buck, but which markets/instruments do those on this forum trade and why?
> 
> All have there pros and cons but why do you favour a particular market over another, many may trade 2 or 3 or maybe all instruments but I would expect even these traders favour 1 market over the others.
> 
> ...



I'm with you Pager- daytrading index futures  
Nikkei and Hang Seng for me.
Nikkei is quite similar to the SPI, but about 50 times more liquid, which is why I like it.
Hang Seng is fast and volatile, so it satisfies my need for activity on a regular basis


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## wayneL (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*



			
				Bronte said:
			
		

> To be *fully * diversified you probably require to own:
> 
> Property
> Shares
> ...



This is true, but such diversification may be negative. I am not making the the point whether you should or shouldn't, or how much, oe whether it's good or bad, just that you aren't.

Simple point made complicated.


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## theasxgorilla (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*



			
				wayneL said:
			
		

> This is true, but such diversification may be negative. I am not making the the point whether you should or shouldn't, or how much, oe whether it's good or bad, just that you aren't.
> 
> Simple point made complicated.




Simple as it was I think you missed it.  Internal diversification of the instrument you trade can reduce volatility making price action smoother, making technical analysis easier and high leverage trading safer.

"Internal diversification" is a valid reason for wanting to trade the SPI.  Subtle, but important.


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## >Apocalypto< (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*

Great Topic Pager


Traded options over aussie stocks and traded US Futures.


Now trading Options over XJO 

CFD's over aussie stocks and Aussie200 XJO index + Oil & Gold.

Looking to start trading the SPI but that will be later. 

When I have more avalible cash to let sit in the market I want to start trading shares.  :bananasmi


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## wayneL (4 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*



			
				theasxgorilla said:
			
		

> Simple as it was I think you missed it.  Internal diversification of the instrument you trade can reduce volatility making price action smoother, making technical analysis easier and high leverage trading safer.
> 
> "Internal diversification" is a valid reason for wanting to trade the SPI.  Subtle, but important.




Gorilla

Reread this thread particularly post #8. Your point, is a point I raised before you even entered the thread. I repeat, you are regurgitating old points and applying them outside of the context of the discussion between me an the Brontemen and women.

In your context I agree, in Bronte's context I disagree.


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## Temjin (11 March 2007)

*Re: Shares, Options, Futures, CFD's - what do you trade and why?*

Trading the SPI index along using one single trading system is not necessary a diversification at all regardless of volatility or how easy it can be traded.

My definition of real diversification (from the perspective of trading only) is to have multiple uncorrelated systems trading in uncorrelated markets. (equities, futures, commondities, etc, etc)

A portfolio of such systems trading in those markets will have a much higher chance of having a lower maximum drawdown than trading a single system on a single market. This is simply because drawdowns from these different markets/systems will rarely occur at the same time as they are uncorrelated, and thus, have limited cumulative downside effect. 

Anyone who thinks buying an Australian share managed fund is true diversification simply because it has lower volatility is simply wrong.


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