Futures or Stocks?! The truth

[Spectra]

When I was at Merrill Lynch I did more ag trading and currency trading than I do now.

There is no scientific reason for me at this time to concentrate on index trading than other instruments. True, the only people I have actually trained with made their big money by trading the indexes, so by familiarity I gravitated toward indexes.

That being said, I do believe that a true robust method should work on all markets. In the spirit of curiosity I have gone back and looked at soybeans and pork bellies and the methods we use seem to catch some nice trades. But I have not done a real study, nor paper traded, nor traded even a small cash account in other markets yet. Of course if a client with $5 Million dollars came up and said he/she wanted to concentrate on agriculturals or forex or oil futures, I would definitely assign someone to start the research factory, LOL.

My first inclination is to specialize, at the risk of not being able to help lots of clients. On the other hand, I think many important factors that go into trading, sports, and business success can be of help universally---like positive personal reinforcement. Learning how to deal with setbacks, defeat, bad luck, bad advisors, and competition---just learning lessons in survival---is a valuable commodity.

I am sure that a brain surgeon can learn to be a proctologist, and the opposite as well---I would just want them to use separate tools. But how many patients would go to: Barry Beavis ---Practice Limited to Neurosurgery and Proctology. Ask about our $10.00 trial biopsy special for first time customers.

Successful trading:

Alex L. Wasilewski
Co-Founder & Head Trader
Trades That Work
www.puretick.com

 

[scriabinop23]

Quote from illiquid:

Point being, you can let yourself go awol in equities and probably still come out alive by 4pm -- much more forgiving. In futures every day can be your last, they will give you that much rope if you take it.

This is a stupid argument for one reason: size. People who don't know the notional value of what they're trading will get thrashed, because it boils down to zero money management.

1 NQ future = $37k

Which means if you can trade 400 shares of AAPL, there is no difference (except higher downside risk in AAPL due to company specific risk exposure) between that and NQ.

If you're running off buying future contracts in the same numbers you are SIRI shares, then you deserve to get thrashed.

Its called basic multiplication, and if you can't do that, all the other market participants deserve your money.

That said, the futures are an excellent vehicle for index exposure (thus avoiding specific company risk), and to the end they can be no different than stocks. The trader needs to merely learn some 1st grade math before using them.

Same goes for non-index futures, except that the value/price argument takes on a whole different context (which introduces other more difficult to meter risks).

 

[sulli]

That said, the futures are an excellent vehicle for index exposure (thus avoiding specific company risk), and to the end they can be no different than stocks. The trader needs to merely learn some 1st grade math before using them.

[/B]

Amen!

Not all of us use the minimum performance bond requirements per contract.

Some of us actually use money mangement and size according to our account equity.

Gun slinging is not that sexy.

 

[GGSAE]

Quote from andread:

Just for curiosity: how would that compare to Forex? Forex also seems to have similar advantages

Haven't you seen the 4X made easy commercial...it's so easy, you can do it lying down on couch, lol.

 

[dinoman]

Here are some some of the various reasons why a lot of consistant traders prefer to trade futures (YM, ES) over stocks.

+ You can day trade without needing $25,000+ in the account! Setup two accounts with about 10K in them and gain access to hedging techniques

Being under capitalized Is one of the biggest no no's in trading anyways. If one doesn't have the money to trade then they probably shouldn't be trading anyways! You can open 2 equity accounts and do the same, but why would anyone hedge such a small account? If you need to hedge in this scenario you shouldn't be in the trade in the first place.

+ commissions are decent $4/round turn trip on the e-mini futures

So are stock commissions unless your with a broker that overcharges. $6 for a round trip on 1000 share is comparable if you ask me.

+ Tax Reasons + You don't have to list every sale on your return! (for people in the USA)

I will give you that one.

+ It's liquid enough. Market orders are instant. No weird fills

Don't trade illiquid stocks. I have seen some bad fills on futures especially in the YM's and the Er's.

+ The spreads are never going to be huge like they can get on stocks

Once again don't trade illiquid stocks.

+ Focusing on one instrument day in and day out is less complicated and more productive

Thats just your opinion, there is no factual basis to this.

+ You can sleep in! Don't bother with waking up at 6am to scan for stocks to trade

This is your opinion again. I know traders that get up that early to analyze futures too. Once again there is no factual basis to this one.

+ Share size allocation is easier. You can trade from 3-8 contracts instead of thousands of shares that get filled at different prices

3 -8 contracts is no different then 300 to 800 shares. If you don't want to be filled at different prices use what they call a limit order. Worse case scenario you could get a better fill, which you will not get in futures with a limit order.

+ We've all held a stock that plunged due to random company event. While econ reports move the futures. It's never been -that- bad and you know when these reports will be released in advance.

What about random Fed talk, terror scares, etc. This statement has no basis either.

+ There are always shorts available!

I will resistantly conceed to this one.

+ No uptick rule (not that its going to be lasting too much longer)

If you need to get in short that fast than you shouldn't be taking that trade. JMHO on this one.

+ The $5/tick range of the YM makes for lower slippage(ES, ER too volatile=bad slippage)

This one makes no sense at all!

+ Bang for the buck. You make 1+ 3 trades a day and can make as much as the multiple stock juggling stock traders do.

Did you REALLY say that? Please tell me you mis spoke!

+ Don't have to follow the indices and sectors, eminis ARE the indices. stock traders constantly have to follow the cues from the indices to track their positions. That means more eyes to follow all these charts.

Another false statement. That is your opinion based on your trading experience.

+ Less investment in hardware and software cost. I used to have 3 PCs with 3 monitors, now only 1. Used for have 4 charting services, now 1, another as backup and it's free.

This statement once again is based on your experience and has no basis other than that.

+ NO gaps to deal with, market always open. Terrorists attacked London underground early hours of the morning, if you wanted to, could be out in minutes and not wait until open and dump the stocks along with panicking crowd.

What if your broker doesn't allow transactions over night. Last I checked most people have to sleep to stay alive. Don't think to many people were sitting at their pc in the middle of the night worried about their position. If you got out minutes later you got wacked! Look at the chart. If I remember correctly the market ended up that day. So if you bailed in the middle of the night on futures or went short you got wacked. If you held you stocks you had a great chance of a gain. Also no gaps in the futures market? Please tell me you didn't say that! Market is always open? That is a flat out lie!

+ NO market makers, no games.

PLEASE! No market makers is right, but no games is flat out laughable!

+ NO routing decisions to make: "ECN? ARCA? REDBOOK????? Oh man, could have gotten a better fill with ARCA!" Geez, Louise.

Use a broker that always takes the best fill. The good brokers have setting for this. 9 out 0f 10 times I always get a better fill on stocks than futures. Its called Limit not market orders. Please don't tell me you never went in at "market" on the Ym's and got a bad fill.
------------------------------------------------

You really need to com up with better truth baring examples than what you provided. Don't take my response with a grain of salt for it not intended that way. Your just trying to make a case on personal experiences, bad trading decisions, poor execution of trading techniques etc. Both markets have their good and bad points. Some traders prefer one over the other or both. People need to trade what works best for them and stay with as long as its working.

 

[Neet]

Dino,

It might be personal preference but I could not be happier trading futures.

Did Equities for many years, four trading them consistently well for good profit.

I now find myself with a lot more free time due to less research.

Still doing the trading on paper because I'm very conservative when it comes to new approaches. However, so far, so good.

I feel I am trading an instrument that is harder to manipulate.

Couldn't be happier with this transition for the time being.

 

[dinoman]

Neet, and that is what you should do. Trade what works best for your financially, emotionally, and so on.

 

[Neet]

Quote from dinoman:

Neet, and that is what you should do. Trade what works best for your financially, emotionally, and so on.

Absolutely, well said.

 

[Jayford]

Quote from Daal:

What about differences in tax rates, is there any?

Yes, futures profits are taxed at a lower rate. They are taxed at 40% long term capital gains, and 60% short term (regular income tax rates). Doesn't matter if you day trade and make 100 trades per day. 40% of your profits will be considered LT gains.

When doing your taxes, you don't have to list the trades either. Just supply the 1099 numbers.

 

[ddunbar]

Quote from Jayford:

Yes, futures profits are taxed at a lower rate. They are taxed at 40% long term capital gains, and 60% short term (regular income tax rates). Doesn't matter if you day trade and make 100 trades per day. 40% of your profits will be considered LT gains.

When doing your taxes, you don't have to list the trades either. Just supply the 1099 numbers.

You got that backwards. Section 1256 contracts (futures and index options) are taxed 60% LT, 40% short term.