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The Future's So Bright: New Opportunities In MSCI Indexes

02/10/11 08:25:23 AM
by Donald W. Pendergast, Jr.

Never before has the typical futures market participant had so many trading opportunities available -- and all under one roof.

Security:   MSCI
Position:   N/A

In late 2009, NYSE LIFFE US began offering futures contracts that are based on the MSCI indexes, one of the most widely followed group of market index benchmarks in the world. While I can't even begin to scratch the surface as to how big the implications are, especially for US-based traders, here are some of the major advantages of migrating at least a portion of your trading activities to any or all of these MSCI index-linked futures market products.

Currently, there are two main classes of MSCI indexes licensed by NYSE LIFFE US for futures trading -- those focused on developed markets and those that deal solely in emerging markets. Between these two classes of indexes, there are six specific regions covered, which essentially covers the entire international trading and investing arena:

Developed markets:
MSCI USA (Styles, Sectors)
MSCI Europe (Large Cap, Styles, Sectors)
MSCI EMU (Large Cap, Styles, Sectors)

Emerging markets:

Based on their own literature, it appears that as many as 15 different MSCI index futures contract products will ultimately trade at NYSE LIFFE US in the coming myears, offering some easily discernible benefits to savvy futures traders:

* The ability to minimize datafeed and/or exchange fees; just think, if you can trade futures on nearly every conceivable MSCI stock index in the world, and all at one exchange, you may be able to save hundreds or even thousands of dollars in such fees by consolidating all of your trading at NYSE LIFFE US. Since they already offer the NYSE LIFFE US metals futures products (mini and full-sized gold and silver futures and futures options), you will eventually have an enormous number of markets with which to fine-tune your futures trading strategy -- again, all under a single roof.

* The fact that many of the MSCI index-linked exchange traded funds (ETFs) also trade on NYSE ARCA and their related options trade on NYSE Amex can also mean greater efficiencies and hedging opportunities for larger traders and entities. As MSCI index futures now a part of the same gigantic NYSE market show, the opportunities to increase profitability and efficiencies by way of the enormous amount of market liquidity residing under the big NYSE tent should not be discounted.

* MSCI indexes are at least as well known as their S&P counterparts and have the added advantage of better global coverage than S&P-linked indexes. In a world where brand recognition and brand loyalty is critical to success, the ever-widening sphere of MSCI index recognition by traders can only help to further fuel interest in these new NYSE LIFFE US futures products.

Here are a few other interesting tidbits worthy of serious traders' attention:

* MSCI index futures are cash-settled against the underlying indexes, eliminating tracking errors in relation to their benchmarks.

* NYSE LIFFE US is also aggressively courting specific groups of traders and market makers in order to rapidly increase the liquidity of these new futures products and also offering a rebate program.

As the global futures market continues to grow, the number of venues in which to trade appears to be steadily declining as wave after wave of merger takes place, eventually resulting in a seamlessly integrated, transnational arena in which skilled traders of every nationality can compete on a scale never before imagined.

Trading systems and proven charting techniques know no language or cultural barriers, and these technical tools will work just as well on an MSCI index EM or BRIC futures market chart as they will on one of the MSCI index EAFE or MSCI index USA futures market chart. Hedgers and spreaders may also find that these new futures contracts permit them much easier deployment of their own unique trading strategies.

All in all, it's never been a better time to be a skilled futures trader, as the sheer number of markets to choose from can help keep a well-developed trading regimen fully deployed in virtually any conceivable market condition. There's always a bull market somewhere, and with this many MSCI index futures markets trading under one roof, savvy traders should have little trouble in learning how to best profit from whatever opportunities the global markets present them with.

Donald W. Pendergast, Jr.

Donald W. Pendergast is a financial markets consultant who offers specialized services to stock brokers and high net worth individuals who seek a better bottom line for their portfolios.

Title: Writer, market consultant
Company: Linear Trading Systems LLC
Jacksonville, FL 32217
Phone # for sales: 904-239-9564
E-mail address:

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