Stocks or Futures?

I think that we should have a discussion on advantages and disadvantages on trading futures vs stocks and vice versa.
In my opinion stocks are easier to trade and probably better choice for novice trader but in stocks there is a limit of how far can you go. In futures once you become profitable, sky is the limit.

 

I am going to start trading NQ in a few weeks, I have been papertrading and trading the Q's off the NQ for a month or so.
Daytrading the Q's on ISLD is quite difficult in my experience with the stops I try to adhere to (2-3 NQ points or 10 cents) mainly because of execution and spread (the QQQ also has its own supply and demand). But trading only one vehicule is great I think, and there is more money to be made (or lost) in the futures. Plus now I don't know but I watch some Naz stocks after the close and they just don't move much anymore even when the futures move. The Nasdaq 100 Futures really doesn't trade like Nasdaq stocks I guess the floor traders always try to take out the stops, you can feel there are many more professionnals. If you read books like the Market Wizards etc you find out all the really big traders trade futures.

 

Futures Advantage: mark-to-market treatment

Section 1256 of the IRS Code


60% of the Gain or Loss taxed as a long-term Gain/Loss

and

40% of the Gain or Loss taxed as a short-term Gain/Loss


(note: I believe Stock Futures unfortunately will not fall under this favorable tax treatment)

 

View point and market observation. I have become, later in my
career a timer or macro viewed observer of the markets.
Stock picking has never been my thing despite that I was a
active broker for 2 years. trading stocks based on pure charts
or market action is the same as trading the whole index BUT
futures have the above advantages. Tax and leverage.

 

i haven't yet traded futures - but for what i have watched so far, i guess there are at least the following advantages:

futures (i think mainly about the nq mini) tend to have a fixed spread during the main trading hours (9.30 to 16.00). spreads of nasdaq stocks can sometimes be too wide - even in liquid stocks.

for most of the time, the nq shows "cleaner" patterns. overall - movement of the futures for me does not seem to be as jumpy as stocks-movement. maybe that's because there are not so many different groups of market-participants (or what else could be a reason?).

in stocks one has a greater choice - but imho it is anyway better to concentrate on one or two markets.

the high leverage of the futures can of course be both - advantage and disadvantage.

what about mm games? does anything similar exist in the futures?

as somebody already metioned in another thread - there is just one routing way for the futures - for me this would be another advantage.

executions should be very fast - as for what i have heard so far (i would trade them via ib).

so - maybe somebody who already traded both can tell me (us) if i'm right with my suppositions.

 

I think that Andrasnm has touched this subject in one of his
posts a few days ago and I would like to expand on it.

First we have to assume that if you chose your entry position by chance
you have 50% probability for the trade to go your way.
Part of those 50% in the long run will be taken by spread and commissions.
More frequently you trade more money will you lose in the long run.

So we have to agree that in order to be consistently profitable one
has to have an edge.

If you believe that you can increase your odds you have to face
theory of market efficiency - "everything is already calculated in the
stock prices".

I don't believe that this is the case. I believe that
Market efficiency = collective opinion of trading community of where the
prices should be

So in order to have an edge over the Market one has to have intelligence and
foresight that is above this collective opinion.

I think that it is easier to implement such foresight in trading futures (bonds,
treasury bills, commodities, indexes) than it is in trading stocks. Stocks
are harder to predict due to too many factors that influence their price.

 

Originally posted by gerry875 [/i]

for most of the time, the nq shows "cleaner" patterns. overall - movement of the futures for me does not seem to be as jumpy as stocks-movement.

Actually I think (nasdaq) stocks have much cleaner patterns, stocks like QLGC, PDLI, HGSI often make near perfect patterns on different time frames and then breakout sometimes to reverse shortly after but if you entered soon enough you are ok. With the NQ if there is a nice pattern you can be sure they gonna try to scalp you out first and THEN it will take off. This is typical.

 

Michaelday Don't worry in about six months were ALL going to be trading futures as the volume and action migrates over to single stock futures, particularly in the Intc's, csco, aol's etc. The volume will astronomical in these contracts. For example on Friday lets say only 20% of Cisco's 92,000,000 share volume went to futures, you're talking about 184,000 contracts! And your futures volume will probably run closer to 40 to 50% of current "real" volume in stocks. I talked to the NFA in Chicago last week and they are looking for a Dec. launch, 100 shares contracts and appx. 20% margin. The NYSE and the NASD probably shot themselves in the foot real good this time with their ill advised Pattern Day Trader scheme. this was nothing more then a cynical attempt to put Deep Discount and Direct Access firms out of business.

 

I am not sure stock futures daytrading is going to be such a good proposition. Right now there is a lot of hype and Futures exchanges and brokers expect to cash in on these new products by attracting (naive?) newcomers.There is the leverage that can decimate your account real quick, the liquidity might not be that great, and you still have to deal with the same risks of equities; the MM's games, individual news and fundamentals etc. that make stocks movements depend on many different factors. Also you gonna have to watch the cash, so you'll need a feed with level 2 ,T&S etc PLUS you'll need a feed from the futures exchange. You probably will need a second PC to run all this or at least have a lot of RAM and it's gonna cost a lot just for the data feed.

 

Gerry875: “what about mm games? does anything similar exist in the futures?”

You’ve got the pit and you’d better learn to trade with ‘em for the most part. As Kicking correctly mentioned, the locals are notorious for fake outs in the absence of dealer participation. Having an idea as to when the dealers might enter is important in gauging direction.

I also line up with Kicking regarding patterns and S/R. From my experience and recent observation, patterns and S/R in some stocks appear to be more readily defined. I would imagine that this is even more of a truism for less liquid issues.

One the other hand, I also agree that movement in the futures can appear tame in comparison to corresponding movement in some stocks. This muted movement may help to identify patterns that can otherwise be obscured by these extreme swings.