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Larger “Leverage” Than With Stocks

Larger “Leverage” Than With Stocks

Security deposit of futures equals 10-20% of the stockprice, i.e. one can open positions with leverage 1:5 to 1:10. And officially permitted amount of loan is1:4 and that is only for a certain class of investors.
No Pay For Loans

No Pay For Loans

When trading derivatives there's no need to pay for credit resources (“leverage”). Besides opportunity to open marginal positions doesn't depend on the broker's capacity, but only on the capacity of investor himself.

Hedging

Hedging operations
The goal of hedging (risk insurance) is protection from unfavorable prices fluctuations on the stock, commodity assets, currencies, interest rates markets, etc. Below are the some of the possible hedging variants:
  • Insurance from an Example prices reduction on certain stocks
    Example
  • Insurance of the whole share portfolio with the help of RTS and other index futures and options.
    Example
  • Insurance from rate risks with the help of derivative instruments on dollar/ruble exchange rate and other currency pairs.
    Example
  • Insurance from unfavorable price fluctuations on oil, gold, grains, and other commodity assets.
    Example
  • Insurance from bonds price reduction due to the interest rates increase
    Example
  • Let's look at the currency risks hedging as a more detailed example.

    What is a currency risk

    If a company deals with import / export of products or services, or it attracts / places credits / deposits in a foreign currency then this company faces currency risks, i.e. it can incur losses due to the unfavorable currency exchange rate change.

    Why use hedging

    Hedging allows for a significant improvement of the results of the company's business activity:

    • insurance of unfavorable value change of foreign currency against national currency
    • no more uncertainty regarding future profits; financial flows become more transparent
    • in some cases the cost of credit resources that are used is reduced
    • the company's funds are released and manageability is improved

    For example, a company is working in Russia and takes a 1 mln USD (or Euro) loan. Obviously the growth of dollar (Euro) is bad for the company as ruble will be losing its value, and company's profits are in rubles. The weakening of ruble against dollar (Euro) will influence the company's profits in a negative way.

    Planned devaluation of the national currency by the Central Bank of the Russian Federation is one of the main reasons for the ruble slump. Another important reason is quite low oil prices and a considerable dollar outflow from the country.

    Ruble / dollar exchange rate variations
    Ruble / dollar exchange rate variations

    In such a situation the best way out is hedging (insuring) currency risks with the help of derivative instruments - futures or options.

    An example of hedging operation
    An example of hedging operation

    Hedging examples

    Example 1.
    A company operating in Russia takes a 1 mln USD credit. In order to protect itself from dollar growth it needs to buy dollar futures or a call option on this futures. As a result, if dollar will grow and the amount of credit to be returned will increase, the company will gain profit from derivatives and thus will make up for losses caused by dollar growth.

    Example 2.
    A company operates in Russia and exports its products, getting dollar revenue. In order to protect itself from ruble growth it needs to open a short dollar futures position, or buy a put option on this futures. As a result, if dollar will be falling and the revenue decreasing, the company will get profits from derivatives, thus compensating for the losses caused by ruble growth. Hedging allows to predict the company's revenue in rubles irrespective of the largely unpredictable currency exchange rates behavior.

    We provide the opportunity to hedge the following assets:

    Currencies
  • Australian dollar (AUD)
  • US dollar (USD)
  • English pound
  • Euro
  • Canadian dollar (CAD)
  • Mexican peso (MXP)
  • Russian ruble (RUR)
  • Swiss franc (CHF)
  • Japanese yen (JPY)
  • Metals
  • Aluminium
  • Gold
  • Copper
  • Palladium
  • Platinum
  • Silver
  • Uranium
  • Energies
  • Petrol
  • Mazut
  • Natural gas
  • Unleaded gas
  • Propane
  • Crude oil (Brent)
  • Crude oil (Urals)
  • Ethanol
  • Grains and oils
  • Corn
  • Oats
  • Wheat
  • Rice
  • Soybean oil
  • Soybean
  • Barley
  • Meat
  • Mutton
  • Frozen pork
  • Cattle
  • Softs
  • Orange juice
  • Cocoa
  • Coffee
  • Butter
  • Milk
  • Sugar
  • Cotton

  • The advantages of using futures compared to forwards

    The main advantage is lack of risk of default on counterpart's obligations the way it happened, for example, in 1998 when some Russian banks cancelled their currency forwards obligations. The exercise of options and futures is guaranteed by the stock exchange.

    In Russia as well as in other derivative markets of the world derivative instruments are traded on a wide variety of assets, so one can conduct hedging operations on a wide variety of instruments.

    Using our strategies, you will increase the stability of your business in a highly competitive environment.

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