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This video explains what gearing is and how it can be used to enhance capital returns.
Futures contract – A contract between two parties to buy or sell a tradable asset, such as shares, bonds, commodities or currencies, at a specified future date at a price agreed today. A future is a form of derivative.
Gearing – A measure of a company’s leverage that shows how far its operations are funded by lenders versus shareholders. It is a measure of the debt level of a company. Within investment trusts it refers to how much money the trust borrows for investment purposes.
Options – Options are financial instruments that are derivatives based on the value of underlying securities such as stocks. An options contract offers the buyer the opportunity to buy or sell-depending on the type of contract they hold-the underlying asset. Unlike futures, the holder is not required to buy or sell the asset if they choose not to.