Pros and cons of trading markets

This is a good thread.

xelite777, you are almost correct but not entirely. Leverage per contract is set by the broker but actual account leverage is set by trader capitalization. This article explains it well with examples.

stocks

pros: game is not zero-sum, dividend payments
cons: insider trading

cash bonds

pros: can keep to maturity and not lose principle
cons: wide spreads, institutional game, defaults

futures

pros: leverage, cannot default
cons: leverage, zero-sum game

forex

pros: leverage, cannot default (for majors), liquidity
cons: leverage, not exchange traded, zero-sum game

options

pros: options buyers can control downside, many strategies
cons: option sellers have unlimited downside, often too expensive, premium decay

cryptocurrencies

pros: none
cons: not backed, high volatility, can lose wallet, hacking problems

ETFs

pros: liquidity in many cases, can track indexes and sectors
cons: expense fees, tracking error
 
Pros and Cons of trading stocks versus futures

Written by Carl Savant, Finance Professional, Blogger

Stocks Pros:
- Unlimited tenure
- Income generating (in a long position, if there is a dividend)
- Mechanics of trading are simple and easy to understand
- Economic activity of underlying firm can generate a long term upward trend in price

Stocks Cons:
- More difficult to do short positions
- By definition only one asset class (but very broad in terms of activities of firms)

Futures Pros:
- Easy to do both long and short positions
- Futures curve allows for more variants of trading strategies
- A very wide array of asset classes are available

Futures Cons:
- The lot size can be prohibitively big on certain contracts for smaller portfolios
- Fixed expiration date requires regular trading activity
- Trading mechanics more complicated.

http://www.quora.com/Trading-finance/What-are-the-pros-and-cons-of-trading-stocks-versus-futures


Futures Vs. Stocks

by Tim Plaehn, Demand Media

The futures market and stock markets are two distinct and separate securities trading venues. Each side has its own exchanges, regulatory agencies, brokers and jargon. An investor or trader may choose to focus on one market -- futures or stocks -- or use both to broaden opportunities for profits.

Asset vs. Derivative

Shares of stock are ownership in a company. Owning shares allows investors to participate in the profits and growth of a company through share price appreciation and/or the receipt of dividends. Stocks can be viewed as a primary investment asset. Futures are derivative securities. Futures are contracts for the future delivery of a specific commodity or financial instrument. The value of a futures contract depends on the value of an underlying asset such as crude oil, a Treasury bond or a stock index.

Companies vs. Commodities

As ownership stakes, the results from stock investments depends on the performance of the companies behind the stocks. Companies have the opportunities to develop products, grow sales and profits and pay out dividends. Each of the 5,000 U.S. stocks represents a different company with its own way of doing business. Futures are a way to participate in commodity prices -- which can go either up or down. The futures markets cover agricultural product prices, energy prices, precious metals, currencies, stock indexes and interest rates.

Investing vs. Trading

Stocks can be owned as long-term investments or used for short-term trading. A stock brokerage margin account allows an investor/trader to use up to two times leverage on the cash invested. Day traders in the stock market get up to four times equity leverage. For individuals, the futures markets provide trading opportunities but typically are not used for long-term investing. Few futures traders actually want to own 1,000 barrels of crude oil or 5,000 bushels of corn. Futures trading offers a higher level of leverage, ranging from five to 20 times the amount of capital invested, depending on the specific futures contract.

Crossing Over

Crossover financial products allow investors/traders to participate in those products which were traditionally traded on the other exchanges. Stock investors can invest in many commodities through exchange traded funds (ETFs) that track commodity prices. Stock index futures contracts allow traders to take positions on the future value of the stock markets as tracked by the Dow Jones Industrial Average or the S&P 500. The pros and cons of stocks or futures should be weighed against an individual investor's knowledge and investment or trading goals.

http://finance.zacks.com/futures-vs-stocks-4241.html
 
Equity CFDs (based on Interactive Brokers)

Pros:
-You can effectively trade stocks at 10:1 leverage.
-Same spread as underlying stock.
-Same or lower commission.
-Tax benefits in some countries.

Cons:
-Much smaller universe of products available than the stock market.
-Not available to US residents.
 
Biggest issue is you have to pay taxes at ordinary income tax rates. That skews the odds and since very few people even make money they don't realize that taxes in trading are really overhead.
 
futures on commodities.

Pro- Can't go to zero,
Con- maintenance periods or weekend gaps can be shitty if levered on futures. Limit up or down is shitty if levered. Exchange can close for something like 9/11,


Physical commodities

Pros
No counter party risk
No leverage

Cons
storage, delivery


Cryptocurrencies

Pro - I can send $100 million dollars in minutes anywhere in the world without any middleman interfering or taking a piece of the pie. CB's, governments can't interfere by stealing. No printing and devaluing. Decentralized. The ultimate free market. The tech behind it has many applications . Public ledger can be used in many instances to verify trades, transactions, votes in elections, many others. Fees are way lower than current payment and trading systems.

Con- 51% attacks , not that liquid , people don't understand it yet, people don't understand how to protect themselves from hack. ie cold storage. It isn't totally simplified for masses quite yet. Trading platforms, infrastructure could improve.
 
Pros and Cons of Options vs. Futures

by Chris McKhann

For retail investors looking to broaden their horizon, the first step is usually options because they can be traded in the same account as equities. Many then take the next step into futures, but the two markets present very different opportunities and challenges--some of which have come to the forefront recently with the collapse of MF Global.

Futures trading originated in many respects as a way to hedge commodity prices. While that is still a key function, retail futures traders can now speculate on the price movements of a wide array of assets, including oil, gold, currencies, equities, and volatility.

And all this can all be done for a very small margin, allowing for huge amounts of leverage. For example, a futures contract on the S&P 500 worth roughly $60,000 can be controlled for as little as $2,500.

This amount of leverage is in some respects similar to that afforded options, but the two instruments are very different. Losses in futures can come very quickly because of their margin requirements, and it is entirely possible for traders to lose much more money than they even have in their accounts.

The same is true of selling options, but not buying them. Option buyers always know exactly how much they are risking and their maximum potential loss, but they still get significant potential leverage. In fact, the leverage is sometimes greater with options.

Depending on your outlook, for instance, you could buy an SPDR S&P 500 Fund (SPY) call for as little as $50. That would give you control over 100 shares of the SPY, worth $12,750 at the time of this writing.

Futures traders face another important issue: An account must be opened that is different from your equity account, something that has scared off many traders since MF Global's downfall chilled the market. (I personally am not going to stop trading futures because of one bad apple, though it does raise a host of questions.)

On the other side of the equation, futures are in many respects easier to trade than options. If you think that oil or gold are going to rise in price, you buy the futures. The buying and selling is similar to trading equities, except that selling is much easier in the futures world because it is essentially treated the same as buying.

Options have a pricing model--a whole range of them, actually--and a volatility component that make valuing them more difficult. Option traders also need a thesis on the underlying, a view on volatility, and a timing projection. They need to pick a strike and an expiration. Of course, some of these issues are not so clear cut, as there are options on futures as well.

It used to be that futures were the only way to get access to some markets, and to a limited degree that is still true. But various exchange-traded products are now available that allow the retail equity or option trader access to such things as gold. The SPDR Gold Shares Fund (GLD) is one of the largest exchange-traded funds.

I trade futures and options. There are times when I lean toward one market or the other. But from a risk perspective, option vertical spreads provide unparalleled potential returns as well as risk management for all of those who are willing to put in the work to understand options basic mechanics.

www.optionmonster.com/news/article.php?page=pros_and_cons_of_options_vs_futures_64644.html
 
Hybrids (2x and 3X Long/Short ETFs): Combination of Stocks, ETFs, Futures, Swaps and other derivatives all wrapped into one product.
 
ronblack said:
futures

cons: zero-sum game

forex

cons: zero-sum game
More...


Im interested to know why do you consider a zero-sum game as a con? Could you please explain me your perspective in this point?

I agree forex and futures are zero-sum game because for me to make 1$ there has to be somebody losing that same 1$ out there in the other part of my trade. In theory this makes spot currency markets a zero sum game, I agree. Even one could consider those markets ( futures and spot forex) as a negative sum game once you add broker comisions and costs of transactions. But in the real world I don't think how this could be a con or a pro, I think of this as a neutral thing, maybe irrelevant as it is possible to profit from spot currency speculation as in any other free market.

Very interesting to know more about your perspective, mate. Thanks! :)

Btw, great thread indeed.

Regards,
 
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