- If big players use futures in long periods they have to pay extra price (in which include risk free rate) every time. Price of futures is different from asset on risk-free rate. Because for purchasing futures you use just initial margin but not the full value. You can take a difference between full value and initial margin and put on deposit in your bank or you can buy risk free instruments (T-bond for example) and receive extra profit.To avoid this extra profit futures sellers include it in price of futures. Why futures mostly more expensive than assets and price of futures follow to assets price and in day of expiration of futures both prices the same. For some instruments price difference between asset and futures could be from 2% and more per year (it depend on interest rate of central bank, the higher the rate, the higher difference in price). So big players will lose money for overpay on long distance.
- The second problem is to open positions every time on new contract when old expire. If they have big position they pay commission once more, and receive slipping during opening, or average price will worse then previous. All of it is addition risk what they want to reduce.
It’s a delusion if I say that big players don’t use futures. They do it. But for short-terms goals. For hedging, in combination with options and for any other reasons. But nature of futures as instruments is short-term goals. But there are some instruments that were made for long goals. And I will write about them. Some big players bet for the market in general. Thay can use popular shares which are included in index Standard and Poor 500 or NASDAQ index. Or use ETF (Exchange Trades Funds. An ETF, or exchange traded fund, is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, an ETF trades like a common stock on a stock exchange). If you trade emini S&P (ES) you have to know about ticker SPY. If you trade NQ you have to know about QQQ. Let’s compare ES with SPY and check volumes and correlation between them.