Rich Dad’s Financial IQ Cultivation: Stock Fundamentals

Chapter 20 How to Trade Stocks (4)
Futures trading refers to the postponement of delivery according to the price stipulated in the contract after the buyer and the seller complete the transaction.The term of term loan is generally 15-90 days.Futures trading is equivalent to spot trading.The spot loan transaction is a transaction in which the contract is performed immediately after the transaction is completed, while the futures transaction separates the time of contract and performance.In futures trading, the buyer and the seller sign a contract and reach an agreement on the quantity of stocks to buy and sell, the transaction price and the delivery date, and the buyer and the seller perform the delivery within the specified delivery date.For example, a buyer and a seller sign a stock trading contract today and perform the transaction after 30 days, which is a futures transaction.In futures trading, the buyer and the seller do not need to pay or deliver the securities after signing the contract.The settlement is calculated based on the stock price when the sale contract is signed, not the price at the time of delivery.In real life, due to various reasons, the price of the stock is often inconsistent when the contract is signed and when it is delivered.When the stock price rises, the buyer will bring greater benefits with a smaller cost; when the stock price falls, the seller will obtain more benefits.Therefore, this possibility of small capital and large profit is strongly attractive to both sellers and sellers.

Futures trading can be divided into two types according to different contract settlement methods.The first is that when the contract expires, the buyer must pay cash, and the seller must hand over the stock that is stipulated in the contract; the second is that when the contract expires, both parties can conduct transactions in the opposite direction and prepare Offset liquidation, ending with charging the difference.The first method above is usually called futures delivery trading; the second method is usually called spread settlement trading.The sum of these two trading methods is also called liquidation trading.

The purpose of investors in futures trading can be divided into two types:
First, it is for the purpose of speculation. Under this condition, both the buyer and the seller are buying or selling based on the expected price change. The buyer expects the price to rise at maturity, and is ready to sell at a high price at maturity to seek profit from the price difference; The seller expects the price of the security to fall in order to buy it at a lower price when it expires, offset the original sold futures contract, and earn a profit from the price difference;

Second, for the purpose of safety, the futures trading in this case is the trading of futures stocks between buyers and sellers in order to avoid the risk of stock price changes.

In short, futures trading is very speculative, and buyers and sellers who adopt this trading method often have a strong gambling psychology.The buyer usually does not want to buy stocks. Before the delivery date arrives, if the stock market is bullish, he can also sell the forward stocks with the same maturity date as the original delivery date at a high price to benefit from it; the seller does not necessarily hold the stocks , before the delivery date arrives, if the stock market is bearish, he can also buy forward stocks with the same maturity as the original delivery date at a low price and profit from it.Therefore, in stock futures trading, buyers and sellers can make huge profits by "buying short" and "short selling".

[-]. Credit transaction

Credit trading, also known as head trading, refers to a trading system in which securities companies or financial institutions provide credit so that investors can engage in short buying and short selling.In this way, stock buyers and sellers do not use their own funds, but obtain the credit of securities companies or financial institutions by paying margins, that is, securities companies or financial institutions advance funds to carry out trading transactions.Due to different laws in different countries, the amount of margin is also different, most of which are around 30%.Some stock exchanges also refer to this method of paying deposits and advance money from securities companies or financial institutions for stock trading as margin trading.

Margin trading is divided into margin buying long trading and margin selling short trading.Margin buying long-term trading means that a certain stock with a bullish price is bought by the stock trader, but he only pays a part of the margin, and the rest is advanced by the broker, and the interest on the advance is charged, and at the same time he holds the mortgage on these stocks.The broker's profit is the difference between the interest charged by the broker on mortgage of these stocks to the bank and the interest he pays to the bank.When buyers and sellers cannot repay these advances, brokers have the right to sell these shares.

Margin short selling refers to a certain bearish stock. The stock trader pays a part of the margin to the broker, borrows this stock through the broker, and sells it at the same time.If the price of this kind of stock really falls in the future, then the same amount of stock will be bought at the current market price to repay the lender, and the buyer and seller will obtain the benefit of the price difference during the transaction.

The main benefits of credit transactions for customers are:

(1) Customers can conduct large transactions beyond their own funds, and even customers who do not have any securities on hand can borrow from securities companies and engage in securities trading, which greatly facilitates customers.Because there is usually such a situation in securities trading, when customers predict that the price of a certain stock will rise and hope to buy a certain amount of the stock, but they do not have enough funds on hand; or predict that the price of a certain stock will fall, If you want to sell this kind of stock, but you don't have this kind of stock in your hand, it is obvious that if you use the normal trading method, you can't make any transactions at this time.The credit transaction introduces a credit method between the securities company and the client, that is, when the client's funds are insufficient, the securities company can advance money to make up the difference between the margin and the amount required by the client to buy all the securities.Such advances allow customers to return them at a later date, subject to prescribed interest payments.When customers need to sell and there is a shortage of securities, securities companies will lend securities to customers.Through these methods, the needs of customers are met, so that they can carry out large-scale securities transactions beyond their own financial strength, and the market is also more active.

(2) Has greater leverage.This means that credit transactions can give customers an opportunity to obtain greater profits with less capital.For example, we assume that a customer has a capital of 10 yuan, and he expects the price of stock A to rise, so he buys 100 shares with his own capital at the current market price of 1000 yuan per share.After a period of time, the price of stock A really rises from 100 yuan to 200 yuan, and the value of 1000 shares of A stock becomes 20 yuan (200 yuan x 1000 shares), and the customer makes a profit of 10 yuan. The capital ratio is 100%.If the customer adopts the credit transaction method and pays 10 yuan of capital as a deposit to the securities company, and then assumes that the margin ratio is 50% (that is, paying a deposit of 50 yuan, you can buy securities worth 100 yuan), so that the customer can buy A shares 2000 shares.When the price rises as mentioned above, the value of 2000 shares of A stock will reach 40 yuan, and after deducting the 10 yuan advance payment and 10 yuan capital fund of the securities company, you can get 20 yuan (the relevant interest, commission and income tax are not included for the time being) ), the ratio of profit to self-owned capital is 200%. Obviously, the use of credit transactions can bring considerable profits to customers. The losses are also huge.

Of course, there are many disadvantages of credit transactions, mainly because of greater risks.Still take the above example as an example: When the customer uses his own funds of 10 yuan as a margin, assuming that the margin rate is still 50%, the customer can purchase 100 shares of A stock at a price of 2000 yuan per share.If the price of A stock does not rise as expected by the customer in the future, but keeps falling, we assume that it falls from 100 yuan per share to 50 yuan, then the value of 2000 shares of A stock is 20 yuan (100 shares × 2000 shares), a loss of 10 yuan (interests and expenses on advances from securities companies are not included for the time being), and the loss rate is 100%. When the price is 10 yuan, you can only buy 100 shares. After that, when the price per share also drops from 1000 yuan to 100 yuan, then with 50 yuan of self-owned capital, when the price of A stock is 10 yuan per share, you can only buy 100 shares. After that, when the price per share also dropped from 1000 yuan to 100 yuan, the customer only lost 50 yuan (5 yuan x 100 shares ˉ1000 yuan x 50 shares).Its loss rate is 1000%, which is much lower than the loss rate of credit transactions.Therefore, it is generally believed that credit transactions are risky and should be used with caution.In addition, from the perspective of the entire market, excessive use of credit transactions will cause false demand in the market and artificially form stock price fluctuations.For this reason, all countries carry out strict management on credit transactions.For example, the United States has been managed by the Federal Reserve Bank since 50.The supervisory committee of the bank controls the credit trading volume in the securities market by adjusting the margin ratio.In addition, each stock exchange also has regulations on margin calls.For example, when the stock price falls below the maintenance margin ratio, the broker has the right to ask the client to increase the margin to make it below the prescribed ratio, otherwise, the broker has the right to sell the stock, and the loss will be borne by the client. In order to prevent accidents, when customers use credit transactions, in addition to requiring them to pay a deposit, the securities company also requires them to provide corresponding collateral, which is usually used as low collateral, which is the stock entrusted to buy in the transaction to ensure Safety.Despite this, credit trading is still one of the most popular and widely used trading methods in the financial markets of western countries.

[-]. Options trading

Stock option trading is a fairly popular trading strategy in the western stock market.The English of option is option, which is also often translated as option.An option is actually a contract signed with a specialized dealer, stipulating that the holder has the right to buy or sell a certain number of stocks within a certain period of time at the "agreed price" negotiated by the two parties.For the option buyer, the contract gives him the right to buy or sell stocks, and he can exercise this right at any time within the time limit, or he can let it be voided if he does not execute it when it expires.However, for specialized traders who sell options, they are obliged to sell or buy stocks according to the contract.Stock options trading is not a transaction with stocks as the underlying object, but a speculative technique with options as an intermediary.

(End of this chapter)