futures are less risky if you have this gentleman in your corner
www.youtube.com/watch?v=s1C8d2qZrbA&feature=related
www.youtube.com/watch?v=s1C8d2qZrbA&feature=related
Futures riskier than stocks?
- Thread starter short&naked
- Start date
I believe that assuming no leveraged is used, that the S&P 500 futures index offers the least risky way to invest in the stock market long term.
As others have said, futures have no more risk than trading SPY and the likes, it is ALL about leverage as so stated that makes futures a riskier play for the ones who cannot manage it properly.
Increasenow is incorrect, many stock traders use margin and can have huge negative equity blowouts, all a stock has to do is fall >50%, can you say overnight bankruptcy?
What hasn't been stated and is a HUGE benefit of futures, is taxation. Whether you hold a futures contract for a nano-second or 12 months, it is all taxed the same. 60% is taxed at capital gains (15% at the moment), and 40% as ordinary income, thus making an effective tax rate for most of 23%. Hold a stock for less than 12 months +1day, and the whole lot is taxed as ordinary income (likely >30%).
Also beneficial is how the accounting works. With stocks you have to list each and every trade for the year which for some is like writing a novel. In futures, you get one statement at year end that has a simple profit/loss for the year, that's it, one number. If you made a profit of $50,000 for the year, you plug that in your return and hit the beach.
Controling leverage is nothing more than dicipline, trading SPY stock on margin gets you 2:1, trading ES is easy enough to figure out as far as how many contracts to trade, simply multiply the quote by $50. So to dial down your leverage to mimic trading the SPY, you would need $20,000 per contract, (ES= 800*$50=$40,000) matching 2:1=$20,000. Where most fail and get burned in futures is telling themselves they are the greatest trader in the world and only need $5,000 for the ES (8:1 leverage).
If you have paid the tuition as a trader in the school of hard knocks, you have learned dicipline is your only friend. I would recommend ES over SPY anyday, hands down. Liquidity 23.5 hours a day!
Increasenow is incorrect, many stock traders use margin and can have huge negative equity blowouts, all a stock has to do is fall >50%, can you say overnight bankruptcy?
What hasn't been stated and is a HUGE benefit of futures, is taxation. Whether you hold a futures contract for a nano-second or 12 months, it is all taxed the same. 60% is taxed at capital gains (15% at the moment), and 40% as ordinary income, thus making an effective tax rate for most of 23%. Hold a stock for less than 12 months +1day, and the whole lot is taxed as ordinary income (likely >30%).
Also beneficial is how the accounting works. With stocks you have to list each and every trade for the year which for some is like writing a novel. In futures, you get one statement at year end that has a simple profit/loss for the year, that's it, one number. If you made a profit of $50,000 for the year, you plug that in your return and hit the beach.
Controling leverage is nothing more than dicipline, trading SPY stock on margin gets you 2:1, trading ES is easy enough to figure out as far as how many contracts to trade, simply multiply the quote by $50. So to dial down your leverage to mimic trading the SPY, you would need $20,000 per contract, (ES= 800*$50=$40,000) matching 2:1=$20,000. Where most fail and get burned in futures is telling themselves they are the greatest trader in the world and only need $5,000 for the ES (8:1 leverage).
If you have paid the tuition as a trader in the school of hard knocks, you have learned dicipline is your only friend. I would recommend ES over SPY anyday, hands down. Liquidity 23.5 hours a day!
StoshRead the paperwork on a stock margin account more carefully.
increase now, time for some coffee?
400 ES points has never ever happened-- not even close-- and cannot happen. All the circuit breakers would kick in. Even during October/ November 08, the worst days were in the order of about 80 points or so. Not only that, the $500 margin is only on a day trading basis. Full contracts on the ES require about 6200 for overnight holds. For day margins, if you can't meet margin during that day, you're out--end of story. You will lose all your margin and sometime some more than that but you will not lose 400 points X5 contracts X50 dollars per point. Your loss will be more like 5 contracts X500 margin per contract and perhaps a couple of extra thousand.
Of course, if you are day trading futures, you should be watching them all day and using a sensible level of a stop loss, which would vary depending on what contracts you were trading.
On top of this, if you are selling naked options or even spreads, you can lose your margin, too.
400 ES points has never ever happened-- not even close-- and cannot happen. All the circuit breakers would kick in. Even during October/ November 08, the worst days were in the order of about 80 points or so. Not only that, the $500 margin is only on a day trading basis. Full contracts on the ES require about 6200 for overnight holds. For day margins, if you can't meet margin during that day, you're out--end of story. You will lose all your margin and sometime some more than that but you will not lose 400 points X5 contracts X50 dollars per point. Your loss will be more like 5 contracts X500 margin per contract and perhaps a couple of extra thousand.
Of course, if you are day trading futures, you should be watching them all day and using a sensible level of a stop loss, which would vary depending on what contracts you were trading.
On top of this, if you are selling naked options or even spreads, you can lose your margin, too.
you are simply wrong. Every reputable broker will issue a margin call. When trading 5 ES contracts and have 6k in your account every reasonable risk management software will cut your position when getting close to losing that 6k, given those are instruments that now trade continuously without gaps. To start with, 500 margin on ES is highly irresponsible for a broker to offer and I would never sign up with such bucket shop. The point is if you ever get close to fully utilizing such margin levels then you are trading way too large size, period!!! With having said that the risk of blowout is close to 100% over time and you deserve to of course cough up everything you lost to others. So, not sure what point you actually try to make here....cause.....
a) irresonsible behavior deserves to be punished (most brokers dont even let you trade 1 single ES contract with just 6k in your account)
b) index futures are way less risky than individual stocks, especially given those futures now trade continuously while most stocks still dont. All given one employs reasonable batting sizes
c) and you are also wrong about options. When you write options you are subject to margin and a gapping underlying stock can wreck havoc with your option position and account...
a) irresonsible behavior deserves to be punished (most brokers dont even let you trade 1 single ES contract with just 6k in your account)
b) index futures are way less risky than individual stocks, especially given those futures now trade continuously while most stocks still dont. All given one employs reasonable batting sizes
c) and you are also wrong about options. When you write options you are subject to margin and a gapping underlying stock can wreck havoc with your option position and account...
maybe I should have stated it this way:
long $5,000 in CASH ONLY(no margin) in SPY
vs.
long $5,000 in FUTURES ONLY in ES...
the SP500 tanks 200 points...there is no debit at all for the SPY position above...you only totally lose the $5,000...as for the ES position...you would lose your $5,000 (100 ES points) and another $5,000 (100ES points) for a total of 200 ES points lost...see my point?
long $5,000 in CASH ONLY(no margin) in SPY
vs.
long $5,000 in FUTURES ONLY in ES...
the SP500 tanks 200 points...there is no debit at all for the SPY position above...you only totally lose the $5,000...as for the ES position...you would lose your $5,000 (100 ES points) and another $5,000 (100ES points) for a total of 200 ES points lost...see my point?