Before explaining the pros and cons of futures trading, it is important to understand the difference between futures trading and stock trading.
When you buy stock, you own part of the company. This means that you share ownership with other investors. So we say you buy relevant.
On the other hand, futures trading requires a contract to buy or sell that commodity in the future. So they were called. gift.
You can buy and sell these futures contracts as easily as trading stocks. You don’t even need to allocate money in this regard. However, you are linking resources into peripheral forms.
The problem is that your retention margin is not close to the actual value of the item if you purchase it. This is known as the theoretical value. It is calculated as follows: market value multiplication influence.
Well, I've thrown in two more terms that need definition.
that market value This is the price a trader is willing to pay. Typically this is determined by supply and demand. that influence The number of units for the future indicator.
For example, the leverage on the E-Mini SP&500 futures contract is 50. As of this writing, the market cap is trading near 2100. Multiply this by leverage (50) and you get $105,000. This is the default for E-Mini S&P.
As you can see, if you buy an E-Mini S&P contract, you control $105,000 in value. However, unlike stocks, you cannot own them. Depending on whether you want to buy or sell, all you need is a buy or sell contract.
low margin required
How much did you actually pay? This is known as the margin that the broker requires you to maintain while this trade is active. It varies depending on the situation, but costs around 5,000 won.
If you buy $105,000 worth of stock, you would pay $105,000. If you use margin, you still have to pay half that. The advantage of futures contracts is that they only link a small portion.
But the downside is that you have to know what you're doing. If you interfere with futures trading, you will be liable for a large investment. Remember, it's a contract.
This is why traders buy and sell futures contracts without actually purchasing the commodity.
What's wrong?
When trading futures contracts, you must do your due diligence to determine the face value of the futures contract.
If you don't pay attention to the theoretical value and the trade continues against you and you don't exit the trade with a small loss, it can get out of control.
You can lose a lot of money in a short period of time. If the margin limit is not reached, the broker will close the position. This means you may be forced out of the market and not have the resources to come back. Game over!
That's why you need to stay young. Don't add bad deals to lower your cost base. Instead, admit you were wrong and play another day when you get the chance.
merit?
There's a lot more to it than that and that's why I love stock futures. In the remainder of this article, I will briefly list the advantages of futures trading.
Long and short term trading
Selling through futures contracts is as easy as buying. It's just a matter of deciding which direction you think the market is going.
There are no limits on daily trading
There are no restrictions on day trading of futures contracts. Stocks can only be traded three times a day before the IRS considers you a day trader. Futures contracts can be bought and sold multiple times a day, allowing you to make quick profits and take advantage of intraday fluctuations.
No penalty for selling laundry
The IRS will not penalize you for the loss and restart the same transaction within 30 days. Once you've sold off your stock, it's considered a wash sale and you'll lose the loss deduction if you can't carry it over to future profits on the same stock.
The reason futures contracts are not penalized is because futures contract prices are recorded as “market determined.” We will not cover this here. If you're interested, you can always search for the term on Google.
24 hour trading
Futures contracts are traded almost 24 hours a day, except for weekends and brief periods for exchange records.
european deal
Stock options follow the American system and can be exercised at any time. When trading stock options, you must be careful not to exercise the option if it is in the money.
Most futures options are traded on a European basis, meaning they cannot be exercised before expiration. There are some exceptions, especially during the day. But that is beyond the scope of this article.
tax benefits
Futures and options on futures are handled under IRS Section 1256. This provides a tax advantage as 60% of all profits are considered long-term. This applies even if you only press it for a few seconds.
