TOPIX and TOPIX Sector Index Futures
Appeal of TOPIX and TOPIX Sector Index Futures
Update : Nov. 21, 2011
Please be sure to note the features of TOPIX and TOPIX Sector Index Futures.
1. TOPIX covers the entire market.
- TOPIX, the underlying index, is calculated based on the market value of a large number of stocks, as such, unlike cash transactions, you do not need to select and analyze individual issues.
- Investors can trade by forecasting overall trends of the Japanese economy, achieving investments based on a broader perspective. They are not required to forecast trends of individual issues.
- Investments are least affected by wild fluctuations in the prices of individual issues, bankruptcy, or delisting.
- Unlike cash transactions, no dividends are paid.
2. Opportunities for gains in both bull and bear markets
- Unlike cash transactions, futures transactions allow investors to enter the market with a short position.
- Investors in cash transactions are unable to earn profits when the market is steady or contracting, and they have to wait for other investors to begin buying the stocks they hold.
By trading futures contracts, investors can earn profits not only by purchasing stocks at lower prices and selling them at higher prices, if they anticipate that the market will rise, but also by selling stocks at higher prices and purchasing them at lower prices if they anticipate that the market will fall.
3. Effective short-term investment
- Unlike cash transactions, futures contracts have a maturity date. The contracts that offer the highest liquidity are those whose period to maturity is between one to three months. As such, they are well suited to short-term trading.
- With limited investment funds (margin), investors can anticipate the same performance as that associated with much larger investments, offering opportunities for high-risk/high-return investments.
- Unlike cash transactions, because futures contracts are settled by netting, investors incur no interest or premium charges.
4. Most suitable for risk hedging
- When it is necessary to avoid risks of a fall in the value of cash equities, holders of the stocks can hedge risks by selling TOPIX Futures and buying them back at lower prices, even when market prices fall.
In contrast, if trading participants expect that stock prices will rise and they have capacity to absorb the risk from a decline in prices of the relevant stocks, they can reap profits by purchasing TOPIX futures and selling them after market prices rise.
- Holding a large number of stock issues is almost identical to holding TOPIX, a composite index of listed stocks. Investors who hold a large number of stock issues can offset risks by selling TOPIX futures.