futures and options are confusing to me?

Discussion in 'Index Futures' started by martyg, Jul 27, 2001.

  1. martyg


    Could someone please help me out a little by explaining to me the difference(s) between trading stocks and trading options and futures. With the 25K rule going into effect, it looks like I need to learn about this area of the market. If its a really lengthy answer maybe somebody could point me to a good article online instead.
  2. SEC has the rule ragarding the daytrading/25k reg T (margin
    and 3 day settlement). This means when you buy shares it
    can be settled in 3 days even if you sell it a same day.
    It was your broker discretion - no more ! the rule takes the
    broker discretion away on accounts under 25k, so monies will
    only be freed after 3 days. Buying power is impacted !!!

    The futures markets are regulated by NFA. There is no
    impact on futures in regards to the minimum 25k for daytrading. Consider the margin for futures - it's 8-10
    times leverage and it's daily set by the exchange and
    broker if they chose. there is no 3 day settlement as
    account are settled same day for cash ! every day.

    Options on stocks weere always a cash business as usual and you can trade them. Consider the spreads in most option bid and ask - you better think again.

    I hope this makes sense.
  3. Babak


    As you can imagine options and futures are worlds unto themselves and I don't think anyone can do justice to the subject by posting an article.

    If you are totally new to them then get a good intro book such as the "Getting Started in ....." series by Wiley they have one for options and one for futures.

    Also you can check out http://www.cboe.com and http://www.cbot.com

    If I'm not wrong, a recent rule came into effect which prohibits traders off the floor taking positions within a 15 second time window.

    Personally, I think you should be totally comfortable with trading stocks before you move on to derivatives. But that couuld just be me :)

    Hope that helps

  4. tntneo

    tntneo Moderator

    if the SEC's intention was to get rid of retail daytraders, that's it, just promote futures and options or even funnier stock futures.

    leverage depends on your capital with futures. but indeed, with one point nasdaq equalling $20 [emini] per contract, your account will die very quickly if you are not very prepared.
    You should not consider futures lightly. The thing is you can't just jump from momentum play to momentum play. You usually trade one market at a time [maybe 2].
    That's very different from most stock trading. It's the point, it is very different.
    NYSE and Nasdaq stock trading is very different, but futures trading is another animal altogether.

    When you master it, it is great for income though.

  5. There are traders who only trade futures and stock mavens
    who never touched a futures contract. I don't think the
    statement "you must learn to trade stocks before you trade
    futures" is true.For some trend follower traders stocks right now would be very bad. Clearly futures due to the leverage are more dangerous than pure reg T trading. Now that many trade 10:1, 5:1 margin and nasdaq it's not all that different. I trade NL funds and I try not to risk more
    than 2% and it's difficult even for me. I don't use any margin. If you however trade full time to trade 10k for
    e-mini or trade 10k at echo with 5:1 is a coin toss at best.
    It's a bad idea either way and I rather make my 10k monthly
    and save my money.
  6. tntneo

    tntneo Moderator

    I agree.
    I meant to say it is very different. It did not come out right. My meaning was more : you need to know how to trade before trading futures because of the leverage [regardless of stocks or futures, you must master what trading means : trends, execution, position sizing, psychology, etc..]. With stocks you have less leverage so you can make more mistakes when learning. But it is very different so success in one does not make sure success with the other [in either way].

    also, there is no 'right way' to trade. you either make money consistently or you don't. if you do, you are doing fine whatever you are trading and however you are doing it. It is not a religion, it's a job.

  7. in some ways futures can give you more gain and more control. It used to be very bad with fills and "slippage"
    the floor brokers just wanted to shit on small orders and
    they would fill it very bad. Now globex trading it may
    be ok for a couple of contracts, once futures will trade
    more and more electronic it will give some traders the
    leverage and trends you can only get if you trade much bigger. What I don't get is the notion to sign many confusing documents to join LLC - tie up your money and
    pay some software fees etc, when you can just trade e-mini's
    Grant you FCM's are also not insured SPIC !!!!!