Warrants or futures?

[#1]

I have been trading normal shares for about a year now and i am wanting get into warrants and futures, i have read the webguides but i am not sure which one would be best to start with(which is easier to work with would requires a little less experience) I have a lot of time in the day to work on SFM and have been doing so, so i am wanting to take the next step. Thanks in advance for you help.

[#2]

I used to trade warrants, but I fell in love with futures about a year ago and I've never traded a single warrant again. Personally, I find warrants cumbersome and complex, and significantly more risky than futures.

You WILL be advised that futures could, theoretically, lose you more than the money available in our account; whereas you could only lose your whole individual trade with warrants. But this IS merely theory. And having traded both instruments for a while, I suspect that, in practice, it's more likely you will wipe out your account with warrants than you will with futures.

Straw poll - please answer nicely:
1 - Has anybody on here ever been nailed for more than their trade value when trading SSF's?
2 - Have you ever had to up your margin on an SSF to avoid close-out?
3 - Hands up if you've hit the barrier on a wave
3 - Hands up if you've ever held a warrant to expiry at 1c

[CAB]

AVS tend to agree with you dude. Traded warrants for about 5 years and got into futures last year and haven't traded a warrant since. I would suggest tho that you go on the course SBK presents - thats the very basics and I went back a second time. Still I learn sometin' new just about every day. In reply to your thought provoking questions: 1. No. 2. No 3.Yes 4. Yes

[SimonPB]

avs, your Q's have nothing to do with the product and everything to do with the trader. Hitting a barrier or holding to zero is just plan bad trading (albeit blaming the tools is a common excuse) and I would sugest if those who answer yes to 3 & 3 had started with SSF's rather then warrants, they would have answered yes to 1 & 2 but with more damage. Trust me +100% loss is not theory, ask people short ECO and VNF when the bids got announced, one CT camper lost over R100k above his margin for being short ECO.

So to answer the initial question, start with neither. First instalments, then warrants and then SSF's. That said you may stop at any stage of the process if you find what you're looking for in either instalments or warrants. BUT very first, have you been beating the market over the last year? Remembering that in a strong bull making money is easy.

[barry_1]

Very sage advice,i agree fully.i'm finally getting the gist of CALL warrants after four frustrating years,now to tackle PUTS after i've mastered them i'll try SSFs.Obviously a SLOOOOW learner.Funnily i still prefer trading shares.Fraser don't be in a hurry to loose your money."This is not a race to finish,but rather a process of continual growth!"

[Tango]

4x "No" to your questions on my side. Don't think I've ever held a warrant worth single digits. Stopped trading warrants this year tho. I have come to the conclusion that warrants/options are the worst instruments to trade in SA. Currently trading CFDs for both index and shares. Prefer paying interest on margin rather than time-decay. Prefer trading at the spread of the underlying, not some arb market-maker spread. Prefer the constant gearing of either 10x or 4x. No liquidity problems. No stop execution problems. It's a game with willing participants, but you really have to ask yourself why the banks are all falling over themselves to write options and sell them to novice traders. Without discounting Simon's caveat about the potential losses from futures, I figure SSFs, index futures and CFDs are superior instruments for most traders.

[#7]

Ya, I agree that most of the problem lies with the trader rather than with the product. However, the one beeeg difference between SSF's and warrants is this time decay monster thingie. Even with similar gearing between two similar instruments, it's time decay on the warrant that an insidious parasite that sucks the life out of a good trade.
I remember, what feels like centuries ago, taking out a call warrant on Harmony. Good warrant too - started off at 60c, low spread, low time decay, decent gearing, months to expiry, well in the money (mostly non-issues for SSF's btw). Then Harmony tanked and, because of low liquidity on the instrument, missed all my stoplosses.
Well I wasn't too worried, it was only a 50k trade and I could afford to ride it back up again. Three months later Harmony had recovered to about 5% higher than when I'd first bought the warrant, and the warrant, because of time decay, was now worth 1c. It expired worthless and I made 100% loss. An SSF on the same trade over the same period would have made me a PROFIT of about 30%.
Time decay is a built-in penalty that's much worse than high brokerage fees. I really cannot see why experienced traders would ever choose warrants.

[SimonPB]

avs, with respect. What you say is correct. But it is still bad trading, you can't hang onto a warrant exactly because of the reasons you experienced. Blaming the warrant is wrong, you failed to fully understand the implications of the product you were trading. And therein lies the crux, warrants are complicated, ssf's are not. Problem is a trader is ill advised to start leverage trading with SSF, imagine if HAR had just continued south for ever and a day? The SSF trader still holding would now be living in a box, and a new inexperienced trader would potentially still be hanging on.

[Tango]

Agree 100% with what you are saying Simon, but I still think it is a mistake for traders to simply treat warrants as proxies for the underlying.
The greeks are important. Any texts I've read on option trading contain strategies that take the greeks into account, rather than treating them as unpleasant but irrelevant side-effects of the instrument. It seems that simply buying calls or puts as a net-long or net-short position is a crude way of trading warrants, but the only way that is really promoted by the banks.
I know I'm harping on about this, but I really think that the banks are making very good money as warrant-issuers, and very few warrant traders are making good returns trading them over a period of time. You have a system that works well, but you have said that you blew out your account a few times before coming up with a strategy that works, and even then you're not sure if it works in a sideways market or when the bear arrives.
Here's a listing of some of the warrant/option strategies commonly used -
http://www.mindxpansion.com/options/free.html

[cfm]

Fraser. I did trade warrants, but found that it is fairly difficult to always find a good warrant. As mentioned, time decay will destroy you if you don't understand it. Due to this reason, I mostly trade waves on TOPI and SSF on the rest.

[SimonPB]

tango, I largely agree with you. One point, when I was blowing my portfolio. It was little about my system or the product. I just knew nothing, I was losing trading stocks, warrants just made it happen faster. The break through was Trading in the Zone.

[#12]

Thanks for the advice guys, its most appreciated.

[Captain_Kidd]

I like ssf but I think you need to understand your timing properly.The biggest cockups that I have made so far have been about timing, in particular when to get out. I also traded shares for about a year and then wanted to take the next step. It also depends on what you are wanting your portfolio to do, Provide income or growth or bothe

[john_1]

Fraser the the best trading tool for a novices is without doubt the instalment. Cant lose more that invested has x3 gearing in some cases pays div's and is far more forgiving when thing go red like today as you have a year outlook. Only down side is it requires more capital then the others.

[Tango]

Ok, then it looks like we are in complete agreement.. if you can't make money trading stocks in this market, then gearing-up and adding time-decay are not going to help? The core of my point is that warrants are often regarded as simple proxies for the underlying and the complexity is ignored. The sense I get from many of the newbie comments is that a lot of naive, impatient money is flowing in, and there is a strong attraction to leveraged instruments before the basics are nailed-down. I've been there, and took a massive loss when I started (ie, more than 100% of my trading capital, if you can believe that).

[SimonPB]

yes, complete agreement.

[Captain_Kidd]

John where can a newbie find out more about share installments and how they work ?

[john_1]

SFM runs courses, Also look under help and education. There are 3 types long, short, and turbo( less capital= more gearing.) Basics are you own the share but borrow money from issuer for some of it value more you borrow= higher gearing. R1 move in the underlying= R1 in instalments. More you borrow higher the div yield!

[CE]

Everybody want their portfolio to make as much moela as possible bro. If you do it for a living, it is the dif between pet's mince and fillet...

[Captain_Kidd]

Everyone talks about diversifying your portfolio, are you into ssf yourself and that the best way to make a living on the stock market, (just out of interest sake) In order to diversify how much % should you allocate to whatever