Equities vs. index futures

Discussion in 'Trading' started by elmo123, Nov 5, 2005.

  1. elmo123

    elmo123

    Hello,

    I'm hoping someone can enlighten me on why there are so many people trading individual stocks rather than index futures. To me it seems that futures offer greater leverage and one has to follow macro events for the most part rather than company specific news. By the time a screen trader receives bad news about a stock it is old news.

    Thanks for the input.
     
  2. The Law of LARGE numbers. With 5,000 some tradable stocks in the U.S. and a only a handful of tradable futures products I could understand why more people could end up trading stocks.
     




  3. Fear, with 500 dollar day trade margins, you get about 100 to 1 leverage. Most people are scared of the leverage and have heard horror stories of people getting margin calls. I put off trading futures for a long time because I was lazy and scared of trying something new. But looking back I do not regret making the switch.
     
  4. it takes 13 hour a day to be a mediocre stock picker. I trade RYDEX funds and only go by tech/sentiment and tape reading...I still can get surprises just not as bad as individual stock trading overnight. (I do not daytrade, if you catch my drift)
     
  5. elmo123

    elmo123

    Thanks for your thoughts.

    I'm hoping more stock traders post on this subject. I'm very interested to hear their rationale.
     
  6. Well, if thats the case, wouldnt they like to trade 500 stocks all in one single click?

    Normal leverage is 15:1.
    You do not need to use the intraday margin provided by some of the brokers.
     





  7. It is about 20 to 1 on YM but my point is still valid, with stock you only get 2:1 or 4:1 if you have 25k plus and want to trade intraday.
     
  8. Yep, I am not saying your point does not makes sense at all, I just wanted to comment the 100:1 picture.

    A trader, newbie or experienced, do not need to use all the margin in each and every trade tho, one can adjust size to what level of leverage one wish for.

    In futures you can trade 1:1 if you want, but also go as high as 130:1 in extreme cases.
    In stocks you can trade 1:1 if you want, and maybe say 5:1 in extreme cases, but usually not more than that.

    Also one have to remember, you wont have to worry that much about sudden big% drop in the index as the ones you risk in single stock trading...

    In my eyes, trading the futures offers alot more choises for the DISCIPLINED trader, and thats what its all about - discipline.

    Most people/new traders seem to lack the discipline needed to trade very high leveraged futures, sorry to say...
     
  9. I did not read the initial post. Trading stocks only has it's merits BUT leverage can and will kill you. There are plenty of traders who have 30-100k to play with and they know certain stocks intimately for them it is natural to trade stocks....
    There are valid studies on the double edged sword of leverage in trading especially in futures.
    Read Gary Smith "How I Trade for a Living"
     



  10. This is how I use to trade stocks, I mainly traded only 2 stocks but I knew them better than most people know their spouses.
    But what always frustrated me was there were days, weeks, sometimes months when I was right on the direction of the market yet the stocks did not correlate with it. This is what lead me into trading index futures. Here are 2 charts of the primary 2 I used to trade just to illustrate my point.


    http://finance.yahoo.com/q/bc?t=1y&s=PMCS&l=on&z=m&q=l&c=&c=^IXIC


    http://finance.yahoo.com/q/bc?s=WMT&t=1y&l=on&z=m&q=l&c=^DJI
     
    #10     Nov 6, 2005