On Fri, 07 Jul 2000, Jon Trowbridge wrote:
> I think that the differences are substantial.
>
> A futures contract is just that; a contract. It has no intrinsic
> value outside of the gain or loss the execution of that contract might
> expose you to.
>
> > I typically pay off the margin and actually take delivery of the RedHat.
>
> Remember, "margin" in futures trading means something totally
> different than "margin" in stock trading. Futures margin is a
> performance bond, meant to guarantee that you will uphold your side of
> the contract.
Is it a bond (as in pledging of assets wherein you still retain the earnings
thereon) or is it a partial payment (as an escrow account).
> Stock has intrinsic value, value and you are exchanging one thing of
> value (money) for another (stock) at the time of purchase.
Nope. It looks like a sheet of paper to me. :-) Often its just an entry in
somebody's books.
The Soybean contract is no different.
Both of them are contracts giving the owner various rights and obligations.
Owning a few shares of RedHat gives me the right to a pro-rata share of any
distribution or liquidation and the right to cast a pro-rata vote on certain
corporate decisions. It doesn't give me the individual right to physically
liquidate their inventory and walk out with my 3 copy share.
> Another tidbit: because futures contracts have no intrinsic value, it
> is basically impossible to define the ROI on individual futures
> trades. Fun, huh?
I disagree. ROI and IRR are well defined concepts that apply equally to these
contracts. The inputs are the amounts that you surrender and the outputs are
the amounts that you receive in return. If you are required to give up $1000
because it is pledged to the contract, that is your investment. If you later
sell the contract for a profit of $12.50, that $12.50 and the original $1000
are the returns.
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