Advantage & Disadvantage of Stock Future Tips

Before I can tell you the advantages and disadvantages of trading stock futures, it's important to understand how it differs from trading stocks.

When you buy a stock, you own part of the company. That is, you share ownership with other investors. That's why we say you buy shares.

Trading stock futures, on the other hand, requires a contract to buy or sell the commodity in the future. That's why they are called Stock Futures.

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You can buy or sell those Stock futures contracts as easily as trading stocks. For that matter, you don't even have to lay out the money. However, you do tie up resources in the form of margin.

The problem is that the margin held is nowhere near the actual value of the commodity if you were to purchase it. This is known as the Notional Value. It's calculated as the market value multiplied by the leverage.

The market value is the price that traders are willing to pay. In general, this is determined by supply and demand. The leverage is the number of units of the future index.

What's the disadvantage of stock future tips?

When trading futures you have to apply your due diligence in knowing the notional value of the stock future contract.

If you don't pay attention to the Notional Value, and a trade keeps going against you and you don't close the trade at a small loss, it can get out of hand.

You could end up losing a lot of money in a short time. If you reach the limits of your margin, your broker will close the trade if you don't. That means you've been taken out of the market and you may not have the resources to get back in. Game over!

For this reason, you need to stay small. Don't add to bad trades hoping to lower your cost bases. Rather, just admit that you were wrong and you'll be around to play another day when an opportunity arises.

Advantages of stock future tips?

There are many, and these are the reasons why I love futures over stocks. The rest of this article will briefly list the advantages with trading futures.

Trading Long and Short

Going short with Futures is just as easy as going long. It's just a matter of deciding in which direction you think the market is headed.

No Day Trading Limits

There is no day trading limit with Futures. Stocks can only be traded three times in a day before the IRS considers you a day trader. Futures can be bought and sold any number of times in a day, allowing one to take quick profits and benefit from intraday swings.

No Wash Sales Penalties:

The IRS does not penalize you for taking a loss and reentering the same trade within 30 days. When this is done with stocks it is considered a wash sale and you lose the benefit of deducting the loss unless you can carry it forward to a future gain on the same stock.

The reason why it's not penalized for Futures is because Futures pricing are recorded as Marked to Market. I won't get into that here. You can always do a Google search for the term if interested.

Trading 24 hours:

Futures trade nearly around the clock, except on weekends and short periods in between for exchange record keeping.

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