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Stocks VS Futures
- Thread starter YoungOne
- Start date
The main question that is still unanswered is: Is it more difficult to learn/trade futures versus stocks and if I failed with stocks will I also fail with futures? I've heard that many went on to futures after they for some reason stopped making money in stocks, why is this? Also, what do you guys think is the minimum to trade futures? I only trade 100/shares right now and don't risk more than 5-10 cents/trade. I think with futures my risk will go up much more.
Quote from YoungOne:
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.
I just started trading futures and place my first one last night. One big difference is that maximum loss for long stock positions is your initial investment, with futures maximum loss on long and short positions is UNLIMITED, so you must have stops in place for both long positions and short positions or cover with long calls or puts.
Also if you don't have enough margin a position might be closed out early and rebound later without you. With stocks you can wait out any downturn.
Quote from Nope:
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
becomes a mute point (unfortunately) when you get up into the equally desired/dreaded AMT level of income. the AMT is a joke- a very bad joke... a painful joke...
Quote from YoungOne:
The main question that is still unanswered is: Is it more difficult to learn/trade futures versus stocks and if I failed with stocks will I also fail with futures? I've heard that many went on to futures after they for some reason stopped making money in stocks, why is this? Also, what do you guys think is the minimum to trade futures? I only trade 100/shares right now and don't risk more than 5-10 cents/trade. I think with futures my risk will go up much more.
Futures, Index or otherwise put more pressures on the unsophisticated trader.
Everything you need to trade stocks successfully, you need to have refined to a crisp degree with futures. Especially your money management.
If you have a difficult time with stocks, you will lose allot of capital trying to trade the ES/ER2.
Unless you have allot of money,time and a rock solid support to fall back on, you will grind your account down to peanuts before you figure out what you are doing right and wrong.
The analogy of major league vs. minor league baseball is spot on.
Advantages of trading fut's over stocks:
1. No inventory problems
2. No uptick rule
3. Massive liquidity if you trade indexes
4. Favorable tax treatment -->> 40% is ST, 60% LT. With stocks it's all ST.
5. Small capital requirements
Disadvantages:
1. <b>Huge Risk</b> You better know what you're doing before you enter this market or you'll blow up your account in a week. I recommend trading on a simulator for at least 2 months. Not so much because this will teach you how to trade but it will teach you how this market moves and hopefully you will appreciate the risk. I trade on a Sim for 2 months, turned 40k into 80k the first month then turned 80k into -100k the second month. The second month was when I really learned how to trade this market.
Good Luck!
1. No inventory problems
2. No uptick rule
3. Massive liquidity if you trade indexes
4. Favorable tax treatment -->> 40% is ST, 60% LT. With stocks it's all ST.
5. Small capital requirements
Disadvantages:
1. <b>Huge Risk</b> You better know what you're doing before you enter this market or you'll blow up your account in a week. I recommend trading on a simulator for at least 2 months. Not so much because this will teach you how to trade but it will teach you how this market moves and hopefully you will appreciate the risk. I trade on a Sim for 2 months, turned 40k into 80k the first month then turned 80k into -100k the second month. The second month was when I really learned how to trade this market.
Good Luck!
Quote from YoungOne:
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.
Hey YoungOne, aren't you that 17 year old kid who wanted to manage money for others? I could be wrong but if you're that same guy you need some serious hand holding. I don't mean that in a bad way, you're just so young you have no experience. You gotta give yourself time to grow as a trader, like any other profession. I don't think I've ever seen a 17 year old doctor besides Doogie Howser. You gotta go through the training first. It takes years, many years but time is on your side.
Quote from YoungOne:
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.
You don't necessarily have to be successful trading stocks first but it would sure help. Your best bet is to either find someone to teach you or Sim trade for as long as possible.
The biggest advantage for me.....since the capital requirements are low ($500 per contract) I can "build" positions. I don't have to throw my whole line on at once so I can nibble over time. This way my timing doesn't have to be perfect. It's hard to do this on stocks because if you nibble and don't get another entry you'll pretty much make 10 or 20 bucks, whereas, the same situation could make you 100 or 200 bucks in the fut's market because of the leverage. The problem....that leverage cuts both ways so you really need to be good to make money in this market.
The biggest advantage for me.....since the capital requirements are low ($500 per contract) I can "build" positions. I don't have to throw my whole line on at once so I can nibble over time. This way my timing doesn't have to be perfect. It's hard to do this on stocks because if you nibble and don't get another entry you'll pretty much make 10 or 20 bucks, whereas, the same situation could make you 100 or 200 bucks in the fut's market because of the leverage. The problem....that leverage cuts both ways so you really need to be good to make money in this market.
Quote from YoungOne:
The main question that is still unanswered is: Is it more difficult to learn/trade futures versus stocks and if I failed with stocks will I also fail with futures? I've heard that many went on to futures after they for some reason stopped making money in stocks, why is this? Also, what do you guys think is the minimum to trade futures? I only trade 100/shares right now and don't risk more than 5-10 cents/trade. I think with futures my risk will go up much more.
Quote from ProfitTakgFool:
Hey YoungOne, aren't you that 17 year old kid who wanted to manage money for others? I could be wrong but if you're that same guy you need some serious hand holding. I don't mean that in a bad way, you're just so young you have no experience. You gotta give yourself time to grow as a trader, like any other profession. I don't think I've ever seen a 17 year old doctor besides Doogie Howser. You gotta go through the training first. It takes years, many years but time is on your side.
Nope not me. I've been trading equities for a year now. I'm starting to get the hang of it but I just really don't like to have to constantly screen for new stocks. A lot of times I miss a good move because I wasn't watching that stock. I was just wondering if people who have traded both for extended periods of time or people who switched from one to the other could chime in and talk about the "trading" differences. I think since I'm not well capitalized, I'll stick with equities for now. I only risk 5-10/cents a trade on 100 shares so thats not much, with futures it seems like I must risk a lot more. Thanks everyone for the input.