The application of leverage principle in finance-a brief introduction to derivative securities options and futures. Options and futures are different from investing in the stock market. The futures market is a zero-sum game, just like four people playing mahjong. Someone wins, someone loses. At the same time, all winners of laboratory furniture and all losers earn the same money. The option futures market is only the redistribution of economic value and will not create new economic value. The money invested in the stock market is different. Stocks can create new economic value through the business growth of commercial institutions. If the economic environment is stable, most investors can make money at the same time through long-term investment. Because of the amplification of financial leverage, making options and futures can make money quickly, but it can also lose money quickly, and its risk is much higher than buying and selling ordinary stocks. Also known as "success is Xiao He, failure is me". In our daily life, the lever principle is widely used. For example, the steering wheel you drive every day uses the lever principle. Maybe you didn't notice it at ordinary times. In the financial field, financial leverage is also widely used. The simplest example is mortgage. Most people don't buy a house at once. If you buy a house with a price of 1 10,000 and pay a down payment of 20%, you will use five times the financial leverage. If the house price rises by 10%, your return on investment is 50%. So if your down payment is 10%, then the financial leverage becomes 10 times. If the house price rises by 10%, your investment return on fumigation-free pallets will double! You are happy! Wait, everything has advantages and disadvantages. Sugarcane is not as sweet as both ends, and financial leverage is no exception. Financial leverage can amplify returns and losses. Take 1 10,000 houses as an example. If the house price drops by 10%, the financial leverage loss of five times is 50%, and the financial leverage loss of Hangzhou invisible screen window by 10 times, that is, your capital loss, is completely wiped out ... Now many houses in the United States are forced to be auctioned, mainly because the financial leverage ratio used before is too large. Option futures itself is already a financial lever, and it is often operated through margin accounts. It also uses the leverage principle, which is equivalent to leverage plus leverage. What is a margin account? A margin account means that when you buy a stock, you only need to spend 25% to 30% of the total value of the stock. 25% when buying long positions and 30% when selling short positions. For example, if you deposit 1 10,000 yuan into a margin account, you can buy stocks with a total value of 40,000 yuan. This means four times the leverage. Of course, 75% of the money is borrowed from brokers, and the interest rate is generally higher than that of banks and lower than that of credit cards; And your account must also keep 25% (buy more) to 30% (short) of the market value of the stocks you hold. Once it falls below this figure, your agent will be rude. If you want to "add margin", you need to "transfusion" quickly. Generally, the margin account of foreign exchange transactions will use more than 15 times the financial leverage; The financial leverage of hedge funds is generally 20 times; The financial leverage of Fannie Mae and Freddie Mac is about 30 times, and the overall financial leverage of Lehman Brothers is as high as 33 times ... Now you will understand why they say it's over. The margin of futures is lower than that of ordinary stocks, only 5% to 10% of the total price. So the profit and loss of futures can be as high as thousands of times the principal! I think Bahrain Bank, an old British bank, was brought down by a trader who played with his "menstrual fingers". Sharpening a knife does not mistake the woodcutter, but hurts people's fingers. When stocks and houses skyrocket, many people hope that the financial leverage can be more than 100 times, so that the return can be profitable quickly; Now that the stock market and houses are falling, many people are forced to sell at low prices, which is a bit like recovering the deposit. When they sell stocks and houses at low prices, more families are insolvent and forced to sell assets at lower prices, thus forming a vicious circle. Americans call this vicious circle process deleveraging. Reducing financial leverage is very painful. House prices have fallen, the net value of houses has disappeared, many houses have been auctioned, and house prices have even fallen further ... Ge Lao said that it is no exaggeration that the United States is now facing the worst economic crisis since the 1930s. At present, many families and banks in the United States are deeply affected by the process of reducing financial leverage and have to turn to the government to rescue the market. From the perspective of national economic development, the government has no choice but to help. The government saved Bear Si Tong, Fannie Mae and Freddie Mac, AIG, then the Federal Deposit Insurance Corporation (FDIC) and student loan deposits ... If individuals used to use financial leverage a lot, now the government will use financial leverage a lot. The result of the government's use of financial leverage will be inflation and the depreciation of the dollar. From this point of view, at present, the long-term bond return of the US government (3.75%) has almost no return after deducting taxes and inflation. The process of reducing financial leverage in the United States and even the world will be a very long and painful process.