montotoxa | Komentarai

Investment Game 2012 4

2017-06-01 06:33:14

I think you may have mis-interpreted my message.

When that someone in stocktalk said that future prices in the game were lagging behind those actually in Simex, he was not refering to the premium (i.e. the difference between the cash and the futures).

As any experienced investor like you would already know, trading on Simex is done in the pit. There is some time lag between the time at which deals are done and the time at which they are keyed into the system. So I am not sure from what data source does the CNA/OUB game get the futures prices from. They might have got them from the delayed source or a significant amount of time has lapsed before data is updated in the game. As a result, the future prices in the game may be lagging behind and people who are familiar with the game's workings will be able to "predict" what the game's futures prices will be in the next update.

I therefore guess that you may have misunderstood what I have written earlier here.

Anyway, the only way to win the scary maze game is to put all the bets in futures because of the high leverage (10 times) inherent in the futures margin trading system.

Mixing futures with stock investment is a mistake for the game.

Lastly, I would like to say a few words on futures premium, right from my head.

The premium depends on various factors specific to the underlying instrument. However they generally include financial & physical holding costs (i.e. interest costs, storage costs, transportation costs, insurance costs etc.).

For futures of financial instruments, the factors affecting the premium are usually interest costs and any other opportunity costs (such as dividends for stocks).

In all futures, the premium will also incorporate some speculation of future prices (i.e. price for insurance against uncertainty).

However if futures prices stray unjustifiably too far away from cash prices, there will be an arbitrage opportunity. This is especially true for futures of physical goods (e.g. gold). A person would buy Gold at spot prices and sell futures at the same time if the futures premium exceed the total costs for holding the gold until delivery on future date.

Even for futures for financial instruments such as interest rates futures, the yield curve or Forward rate agreements will be useful guide to prevent arbitrage opportunity from arising.

Regards,

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