Life Is Complicated Enough. Your Trading Doesn’t Have To Be.
Most veteran traders would generally consider futures to be an instrument of choice for a straightforward and transparent trading experience. To start, there are only two trading buttons; BUY and SELL, allowing you to go long or short as needed. In addition, futures provide a level playing field for all traders with clear price and limit order discovery.
In contrast, stock options add several layers of complexity for a trader starting with pricing based on the proximity of the contract to the current asset price, days to expiration, volatility, and interest rates. Let’s look at some of the advantages futures offer.
Benefits Of Trading Futures vs. Stock Options
Straightforward Contract Pricing
Due to complications around the pricing calculations for stock or index options trading, specialized tools are often needed just to understand how your option position will react to price movement and volatility. Futures pricing and trading is much more straightforward, as you are only trading pure price action. Although futures markets can move quickly, this can create potential opportunities that futures traders can benefit from.
Virtual 24-Hour Trading
When a news story breaks that moves a market, there is often an associated trading opportunity. If you are limited to trading stock or index options, the stock market may be closed when the opportunity strikes and you cannot react until the next trading session. When trading futures, you can usually place a trade in many key markets the moment an opportunity arrives. Futures trading offers virtually 24-hour trading, except weekends, with good liquidity in many markets so you can trade when the time is right.
Leverage
Both futures and stock options offer traders the ability to use increased leverage. This means that, as a trader, you can control a larger position with less money. The big difference here is that long call and put options are a depreciating asset that can be worth zero at expiration. Traders should always be aware of the risks associated with trading on leverage and should only trade with appropriate risk management strategies in place. Leverage allows for potentially greater profits but, of course, with greater opportunity comes increased risk and the potential for large losses.
Technical Analysis Made Easy
Build your futures trading foundation using technical analysis to identify trends, support and resistance and key chart patterns.
Higher Liquidity
With tens of thousands of unique stock and index options contracts available to trade daily, it is not surprising that lack of liquidity can be a challenge for options traders. Low liquidity can lead to higher costs due to increased bid/ask spreads while also making it more difficult to exit a position. Futures markets are recognized as having generally higher liquidity – especially in key markets such as the E-mini S&P 500 - keeping bid/ask spreads tight and making it easier to enter and exit a position.
Lower Capital Requirements For Day Trading
Futures trading generally has a lower initial account opening capital requirement making it easier to enter the market and day trade. When day trading stock options, regulations require a trader to maintain a minimum account balance of $25,000 which can be a high bar for new traders. Futures do not have this same-day trading capital requirement and you can actively day trade using Micro futures contracts with as little as a few hundred dollars in your account.
Diversification
The futures markets provide direct access to trade a variety of products and contracts, both financial and commodities, which are not available through stock option trading. This means that futures can offer greater diversification which can help offset the risk of having all your eggs in one directional basket.
Watch Daily Live Futures Trading
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Intro To Technical Analysis
Learn to leverage technical analysis to target futures trading opportunities and identify trends using chart types, indicators and more.
Develop The Trader In You
Get started on your path to learn how to trade futures through our introductory video series outlining the first steps in your trading journey.
What Does It Cost To Get Started?
It's easy to get started with your futures trading account!
- Futures trading generally has a lower initial account opening capital requirement than stock trading.
- With stocks, there are day trading rules that require a trader to maintain minimum account balance of $25,000 which can be a high bar for new traders. Futures do not have a day trading capital requirement.
- There is no funding minimum requirement to get started with NinjaTrader. You can open your account with as little as a few hundred dollars and start trading any of the available Micro futures contracts.
Best Brokerage for Trading Futures
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