Trace Reed

    One of the main benefits of proprietary trading firms is the leverage they afford their traders. Futures contracts are exchange traded derivatives to buy or sell a certain underlying instrument at a certain date in the future, at a specified price.

    Futures are different than stocks in that the futures contract is a contract between two parties and not actual ownership of a piece of a company as is the case with stocks. So when purchasing a futures contract, you only need to have an amount to cover the ‘performance bond’ , also known as margin for the contract you are purchasing or selling. The price of the performance bond will be a fraction of the actual underlying instrument’s price generating the leverage.

    Since futures are already highly leveraged instruments because they are purchased on margin, there is not much incentive for traders to work at a proprietary firm as instead of trading your own capital.

Monday, 12. May 2008 at 12:56 am Tagged as: FAQ.