RISK and futures

[Vienna]

Actually, the risk should be the same in the above example as trading 1000 qqq's with a 1 pt stop, with a capital of 100k- Risk is 1% of your equity, or 1000 Dollars.
Of course, if you trade futures, above example means that with 100K you could buy a maximum of 10 contracts with a .15 stop. If your stop is wider, you would have to buy less.

 

[Cesko]

Futures riskier than stocks is just favorite cliche people repeat without thinking. Anybody can adjust risk parameters (leverage), whether trading futures or stocks, by account size, trading method etc.

 

[Vienna]

That is what I suspected, but I have heard from I don't know how many people "Futures are risky" and that's why I wanted to get to the bottom of this.
I suspect the Risk comes from the fact that people with small accounts swing 10 contracts or more, and the fact that they keep no stops maybe. There was even a post from Don Bright somewhere where he said that he saw futures trader lose 50 k in one day. That can only be possible if the open risk is 50k, which would in our case equal 50% of the Equity.

Thanks,

 

[Cesko]

I think Don's participation on this site has a lot of value for others but there is almost always a twist in his responses. I asked him some time ago why futures are riskier than stocks. I got no answer which is answer too. What statement that somebody lost 50K trading E-minies means? It doesn't mean a shit.
What it means, even with reading this great forum (not being sarcastic) there is no way around doing your own thinking, research, reading etc.

 

[tntneo]

I agree with the replies here.

futures are risky when you start because it is very difficult to minimize your losses when you learn.

for instance, it is very easy to trade stocks with 100 shares only until you are profitable. until then, you lose but slowly.

with futures, even with a single contract, overtrading and leverage you lose very quickly your capital.

that's where the risk is. you can't minimize your losses as effectively in futures.

when you are profitable and have your trading under control, futures are not riskier than stocks. there are more leveraged that's all.

tntneo

 

[dotslashfuture]

personally i think options can be a great happy medium. More leverage than stocks but with limited risk ( you can only lose your premium if you are long ). If you are long a future and it gaps past your stop ,your loss will be greater than you anticipated.

 

[matthew]

$100,000 worth of stuff, be it stock, bushels of corn, or sewer covers, will fluctuate in price like $100,000 worth of stuff.

The main reason futures are considered high risk investing is the amount of leverage (and risk) you are allowed to take on.

You can trade $100,000 worth of corn and put up only $4,000. This is a margin of only 4%. Or more to the point, a leverage of 25 to 1.

If you own $100,000 worth of sewer covers and the sewer cover market loses 1%, you still have $99,000 worth of sewer covers. If you own $100,000 worth of corn [and you are fully leveraged] when the corn market loses 1%, you've lost 25% of your $4,000, you now only have $3,000, and you'll likely be facing a margin call. Which means you either have to come up with more money, or you'll have to sell and take the loss right away.

The leverage used is what lets people make or lose money so quickly.

If you were to fully fund a $100,000 stock account, and a $100,000 futures account, and not use any leverage, then the risk parameters should be approximately even.

 

[TriPack]

Which exchange lists sewer covers and is there a mini contract available?

 

[janko]

options, thats what i started playing on the qqq's and its been ok, but you have to trade bigger swings, its very very hard to scalp those things, very tough, often you pay up the spread, and you really got to watch them intraday to get a nice entry on them, but i ahve done it in the past few weeks and its kinda nice as with IB you can scale in and out of contracts with buck a piece, its not that bad, and you can easily move 10 contracts on the qqqs no problem. So so far i;ve been doing that, but the minies are pretty damn attractive, i hope to open a futures act soon, next few weeks, i wish good luck to myself, i'll need it.