The decision by the Australian Stock Exchange (ASX) to introduce smaller options contracts to the market is a bonus for small investors who want to hedge their portfolios, says market trading educators Trading Pursuits.

The ASX is phasing-in its new options contracts size during May: previously the ASX had traded options of 1000 shares per contract, as opposed to the standard contract size in the United States markets of 100 shares per contract.

The introduction of 100-share options contracts this month, expected to be taken up by 73 ASX-listed companies, will make option contracts cheaper and more accessible, according to Trading Pursuits managing director, Julie Cairns.

“People who would never have used options to hedge their portfolios because they had to buy 1000-share contracts, will now use options,” says Cairns, whose company specialises in training investors in leveraged trading and hedging strategies.

“There’ll be more liquidity in this overlooked market, because smaller investors and SMSF trustees will take hundred-share contracts where they wouldn’t buy thousand-share contracts.”

Cairns says leveraged trading – such as margin trading – is increasingly popular in Australia because the potential gains are multiplied. However, the potential losses are also magnified and an accessible, liquid options market allows people to make hedging strategies.

“Options are very useful tools for hedging possible downside when you have leveraged your trades,” says Cairns. “Making options more affordable, more accessible and the market more liquid allows small traders to take the same precautions as professional investors and institutions.”

For more information, visit www.tradingpursuits.com