I was wondering if others could share their opinions about trading stocks versus futures. I'm talking about day trading. I've noticed that many go to futures after stocks, why is this? Liquidity? Is it better to learn stocks than move over or just start with futures? I'd appreciate any input, mainly from people who have traded both or switched from one instrument to the other.
Stocks VS Futures
- Thread starter YoungOne
- Start date
It's like a pitcher coming out of highschool or college --first he goes to the minor league farms and then on to the majors...i hope I have my analogy right since i hate baseball.
Stocks are the minor leagues and futures are the majors. Futures is a zero-sum game and the other players are basically the big boys. Stocks are positive sum over a period of time ---so even during the day they are positive sum, although to a small extent.
I've never tried to daytrade stocks before. I day trade the futures and that's where my time is spent. With stocks I'm more of a swing trader looking to hold positions from weeks to months.
Stocks are the minor leagues and futures are the majors. Futures is a zero-sum game and the other players are basically the big boys. Stocks are positive sum over a period of time ---so even during the day they are positive sum, although to a small extent.
I've never tried to daytrade stocks before. I day trade the futures and that's where my time is spent. With stocks I'm more of a swing trader looking to hold positions from weeks to months.
Futures don't have day trading restrictions like stocks do. (Assuming you don't have 25K in your account). When I traded index futures, boy could I churn that account... like there was no tomorrow.. Much easier to blow up with futures.
Futures -- large leverage, favorable tax treatment, no wash rule to worry about. And with index futures, much less time spent researching and data mining as opposed to stock picking and trading.
The advantage of trading stocks over futures, however, is that your less likely to have a load of pigs delivered to your house.
The advantage of trading stocks over futures, however, is that your less likely to have a load of pigs delivered to your house.
who does not want crude oil, or the (dead) componet of livestock on stilts out in front of their mcmansion?
Could you please expand on that one?
Futures and 60/40 Tax Treatment
The potential advantage at tax time for futures is that they receive 60/40 treatment, regardless of the time held. For Section 1256 contracts, 60 percent of the net gain (or loss) is taxed as long-term capital, and 40 percent of the net gain (or loss) as short-term capital. You can buy and sell a futures contract for hours, days or weeks and receive this treatment, but if you were to buy and hold a stock for the same time, all gains (or losses) would be taxed at the higher short-term rate.
Here's an example to see how this works. On May 5, 2006, you buy a regulated futures contact with a value of $50,000. On December 29, 2006, the fair market value of the contract is $60,000. Because you sold the contract at the market's year-end closing price, you realize a $10,000 gain on your 2006 return, treated as 60 percent long-term and 40 percent short-term capital gain. How much difference would this make to you as an investor? Let's say you were in the 35 percent tax bracket in 2006. If the total $10,000 in profits you realized were taxed at ordinary rates, you'd pay $3,500 in taxes.
However, with the 60/40 treatment for futures, your tax liability would be only $2,300, as follows:
$10,000 x 60 percent = $6,000
$6,000 x 15 percent maximum long-term capital gains rate = $900 tax due
$10,000 x 40 percent = $4,000
$4,000 x 35 percent short-term capital gains rate = $1,400 tax due
tax due = $2,300 ($900 + $1,400)
So you can see, you saved more than $1,000 on taxes with the 60/40 treatment for futures profits compared with what you'd have to pay on profits from other investments taxed at the short-term capital gains or ordinary income rates.
Of course, this is a very simplistic example, and other types of futures transactions, such as security futures contracts, straddles, or mixed straddles, face different tax treatment. Please consult a qualified professional for guidance.
Source:
http://www.lind-waldock.com/edu/newsletter/602/tttart01.shtml
The potential advantage at tax time for futures is that they receive 60/40 treatment, regardless of the time held. For Section 1256 contracts, 60 percent of the net gain (or loss) is taxed as long-term capital, and 40 percent of the net gain (or loss) as short-term capital. You can buy and sell a futures contract for hours, days or weeks and receive this treatment, but if you were to buy and hold a stock for the same time, all gains (or losses) would be taxed at the higher short-term rate.
Here's an example to see how this works. On May 5, 2006, you buy a regulated futures contact with a value of $50,000. On December 29, 2006, the fair market value of the contract is $60,000. Because you sold the contract at the market's year-end closing price, you realize a $10,000 gain on your 2006 return, treated as 60 percent long-term and 40 percent short-term capital gain. How much difference would this make to you as an investor? Let's say you were in the 35 percent tax bracket in 2006. If the total $10,000 in profits you realized were taxed at ordinary rates, you'd pay $3,500 in taxes.
However, with the 60/40 treatment for futures, your tax liability would be only $2,300, as follows:
$10,000 x 60 percent = $6,000
$6,000 x 15 percent maximum long-term capital gains rate = $900 tax due
$10,000 x 40 percent = $4,000
$4,000 x 35 percent short-term capital gains rate = $1,400 tax due
tax due = $2,300 ($900 + $1,400)
So you can see, you saved more than $1,000 on taxes with the 60/40 treatment for futures profits compared with what you'd have to pay on profits from other investments taxed at the short-term capital gains or ordinary income rates.
Of course, this is a very simplistic example, and other types of futures transactions, such as security futures contracts, straddles, or mixed straddles, face different tax treatment. Please consult a qualified professional for guidance.
Source:
http://www.lind-waldock.com/edu/newsletter/602/tttart01.shtml