A knock-out is a type of limited-risk position which gives you full control over your margin and your risk. Discover everything you need to know about knock-outs, including how they work and how to trade them.
When opening a knock-out position, the first decision you will have to make is whether you are buying a bull or a bear.
If you believe that the market price is going to increase, you’d buy a bull and set a knock-out level below the opening market value. Alternatively, if you believe that the market price is going to decrease, you’d buy a bear and set a knock-out level above the opening market value.
Let’s say the Hong Kong HS50 is currently trading with an offer price of 26050.1. You decide to go long, by opening a bull position at HK$5 per point with a knock-out level at 25850.1. If the current knock-out premium is 10, the margin you’ll need to pay is as follows:
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