Sch bk 4, LOS 29e, Pg 150
In pre-investing, an investor effectively borrows against the cash he will receive in the future (he invests the cash before he actually receives it).
An outright long position in futures is a fully leveraged position in the underlying as described by the following equation for pre-investing: Long underlying + Loan = Long future
I am trying to understand what is the benefit of preinvesting, is it risk free rate during the pre investing.
Also if someone can throw something light on how the pay-off could look on expiry of the future between the cash received and loss or gain (pay off) on the future.
Kindly help