Some food for thought for a better future

The hey day of warrants is long over and the word on the street is that futures volumes are picking up, in fact it`s been said that South Africa now hosts the fourth largest single stock futures exchange in the world - SAFEX. Pretty impressive if you consider South Africa doesn`t even rank amongst the worlds top 20 economies.

In analyzing the futures market it seems that there are two flavours of futures that are available to investors; exchange traded futures like those available on SAFEX and non exchange traded futures otherwise known as over the counter (OTC) futures available from banks, brokerages and spread trading companies.

From a regulatory stand point these two products are currently treated differently. In South Africa OTC instruments are not regulated by the Financial Services Board (FSB) and although this is changing it means that retail investor trading in OTC instruments have no governing body regulating the industry.

Other than the obvious difference - that one instrument trades on an exchange whilst the other does not - when you stack the two instruments up against each other they are almost identical.

What is interesting though is that a Spread Trading and CFD Trading company seems to have stolen a march on the futures industry. Spread Trading is in effect a "virtual trade", in that you gain complete access to the price movements in the stock without actually having to take ownership of the underlying asset, which also means you pay no MST saving 0.25% on every trade. In essence, they are nothing more than an OTC future, which is priced up off the live equity price in real time.

Global Trader, South Africa`s fastest growing financial institution, which has spent five groundbreaking years developing their product offerings and superior service standards, have without a doubt the best OTC futures trading platform available in South Africa and is the only online trading platform which allows for instantaneous execution.

In comparison, SAFEX`s single stock futures market is predominantly traded over the phone, as there is very little activity on the exchange in terms of live prices and so investors are forced to execute through their brokers over the phone which raises some concerns - as price transparency is important.

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What`s more, Global Trader also offers instruments on international indices, commodities, currencies and bonds, therefore offering the investor a breadth of service and product choice unrivaled in the South African market. In addition, Global Trader`s platform, designed and developed by Global Trader, is the fastest and most transparent spread trading platform in the world, operating in real time, 24 hours daily.

Another interesting point is that Global Trader Group hedges all transactions immediately on the various underlying exchanges which results in them always holding the same position as the investor. Where they make their money is off the spread, which is always approximately 0.35% lower than the JSE bid (selling) price and 0.35% above the offer (buying) price, which means that the cost of the transaction is 0.7%, which is highly competitive. When querying these rates with Global Trader they note that they are negotiable based on volumes. In terms of funding cost they use the SAFEX overnight rate as their benchmark which is currently 6.7% - undoubtedly a fantastic rate.

In summary, Charles Savage, managing director of Global Trader says: "Spread Trading holds a host of benefits over trading exchange futures, making them a very compelling and highly attractive product."

Some of these benefits include:

* No mark to market - which means the investor doesn`t have to keep topping up their margin if the positions moves against them.
* Low execution costs and margin rates
* An online trading platform with live streaming prices and real time execution providing transparent market prices and no broker intervention.
* Trade management functionality including:
* Order
* Stop loss, trailing stops and move stops
* Take profit
* Live intraday charts