Originally and modified from DAYTRADING FDAX FUTURES
Buying futures is easy and requires less money than buying stocks. Buying futures can be for various reasons, eg hedging, speculation or for strategic reasons, eg. China purchasing futures contracts to lock in the price it will pay on the open market while filling its reserves..
If you open a future contract of the German index the DAX, you open a contract which corresponds with an amount of stocks in the German index DAX of about 4853 x 25 = 121.325 euro. The multiplier 25 is a constant which is different for every futuremarket and 4853 being the actual price of the index.
No suppose you could choose to buy this amount of stocks directly on the market or open a future contract. What do you prefer? Soros would know the answer, he would allways prefer the stocks. Why? Because the price of the future differs from that of the underlying index due to volatility, during time of the futurescontract and dividend expectations, the future price usually being higher than the underlying. The difference in price between the future and the underlying index being called the time value, which can be quantified with the Black and Scholes model. So suppose after opening an contract the volatility drops to zero (theoretical but for the purpose of the comparison) and stays zero till the end of the fututre contract (expiration date). The time value of the future drops by definition to zero. This has the consequence that the initial difference between the index and the future will mean a loss to the holder of the futurecontract, even without changing prices at all. The loss of timevalue is very well known of optionprices but lesser known and realised for futures.
The buyer of the underlying index didnot lose anything, on the contrary: though no price gains, he gained divend from his underlying stocks. Thats way Soros prefers stocks over derivatives.
12:10:46 PM 
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