SPI Futures
SPI Futures is a contract between two parties, mutually agreeing to trade, such as buying or selling any commodity, or a financial instrument of a specific amount, at a definite date in the future.
The price at which the commodity is traded is known as the “future price”. It is dependent on the market conditions and the exchange at the time of selling or buying the contract.
SPI Futures - Operations and Advantages:
In Australia, futures are traded in the S&P/ASX 200 Index.
The “future price” of a commodity shows the position of the index at the closure of markets. Generally, it is the third Thursday of every month.
For example, the price of today's SPI futures contract value shows tomorrow's probable opening price at the index.
Unlike share markets, SPI futures are traded overnight. Therefore, they are affected by global markets, which are trading at that time. For instance, discouraging news from the US markets would cause most investors to sell their SPI future contracts, causing a fall in its value. On the other hand, the good news is that there would be more investors purchasing SPI future contracts resulting in a rise in its price.
By calculating the difference between the value of the SPI future contract today at 8 am, and the value of the contract at 4:30 p.m. yesterday, it is possible to speculate the rise or fall of the market, when trading begins at 10 a.m. For example, if a SPI future has a value of 4950 points today and had a price of 4900 yesterday, then it indicates a 50-point gain at the opening of the share market.
When SPI futures are bought, the customer agrees to “buy” the index that determines the SPI futures at a specific date in the future. If SPI futures are sold, then the customer “sells” the index at that particular time. Cash settlements are made on the maturity of the contract.
The total value of the SPI futures contract is neither paid for, nor received till the contract has been established. Instead, both the buyer and seller agree to pay an initial allowance, which is a small percentage of the actual value of the contract.
Profit and loss are calculated on the traded price, which is calculated at the time of maturity of the SPI future contract or at the closing of the position, whichever occurs earlier.
The advantage of investing in a SPI future contract is that, the investor is in an advantageous position, even if the market is fluctuating.
There are substantial monetary gains. For instance, the SPI futures trade at $25 per point. If the SPI future had a value of 1250 and it rose to 1300, then the investor would gain $1250. This gain excludes brokerage charges.
Overview:
Trading in SPI futures offers several financial advantages. The SPI futures contract is the benchmark for equity index futures contracts in Australia. It is widely recognized.
Based on the S&P/ASX 200 Index, it is profitable similar to the traditional equity index.
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