"Reducing Trading Costs in Expensive Markets" Takeaways
Oct 30, 2020
By: Frank Kaberna
Futures dude and tastytrade host Frank Kaberna takes tradeTALK part 7 to product efficiency and beyond! Learn the history of product construction from futures to exchange-traded funds (ETFs) to now, and find out just how important it is to choose the tradable market that’s right for you.
tradeTALK Key Takeaways|
Reducing Trading Costs in Expensive Markets w/ Frank Kaberna
The bullish action seen in stocks, bonds, and gold over the last decade didn’t just hurt bears, but it made life harder for all traders regardless of their opinion. Every dollar higher means another dollar required to trade traditional stock products and multiple dollars added to already-large futures. It’s almost as if every rally slightly raises the barrier to entry with it.
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The 2010s saw an over 200% appreciation in major stock indices, not to mention 55% and 75% higher in bonds and gold, respectively. While the ascent in asset prices certainly delighted buy-and-hold investors, it’s come at the frustration of active traders attempting to profit from short-term speculation on appropriately sized products.
Some of the most popular futures of the past now carry weights well in excess of $100,000. Exchanges are racing to downsize their old products to fit the growing class of individual traders, but in doing so, they are creating a Frankenstein’s monster of contract specifications that confuse even the most experienced traders.
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No matter if it’s mini or micro, traditional futures are still too large for most, and the efficiency known only to futures can be problematic when paired with this size. Recent outliers, which occur a handful of times per year, would have resulted in tens of thousands of dollars in account fluctuations for just one contract.
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Many everyday traders find relief in the growing number of exchange-traded funds (ETFs) that allow for fractionalized exposure to markets. However, the ability to reduce size comes at the expense of greater costs - ETFs require ten to twenty times more capital than futures.
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While options afford traders some flexibility, the baseline of 100 shares can get expensive for many. All the products of old lend some advantages but always at a cost to the smaller trader, which is why the Small Exchange took it upon themselves to make a new kind of product.
The Smalls offer the low costs of futures at a more manageable size. Gone are the days of choosing efficiency or flexibility. True empowerment is here from the Small Exchange.
Watch Episode 7 and tune in next Thursday, November 5th at 3pm CT for Episode 8, Reducing Trading Costs in Expensive Markets w/ Jenny Andrews.
Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.
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