The Difference of Stocks and Futures
Are you new to trade? Perhaps you wonder the difference between the stock trading and Futures trading. Often when I meet someone new who inquires as to what I do, I get a response of "that's like trading stocks, right?"
In some respects are similar, but only minutely so. So let's consider some of the main differences between the two.
Most people have probably traded stocks at one time or another. Usually it is to buy in order to "own" a percentage of a particular company or to liquidate such partial ownership. Pick up the phone to call an agent or online to buy or sell. The order was facilitated through an "exchange" as the New York Stock Exchange, for example.
Buying and selling of futures is similar in this regard. You can call an agent or online to buy or sell futures contracts. The order was facilitated-through exchange of goods, such as the Chicago Mercantile for example. However, while buying a stock that gives part ownership in a company or portfolio companies (such as a fund), the purchase of a futures contract does not give you ownership of a commodity or product. Rather, it simply is entering a contract to purchase the underlying commodity at a specified price at a future date, said in the contract. For example, the purchase of wheat for May at 3.00, just create a contract between you and the seller (which is not necessary to know how this is taken care by sharing) coming May that will take delivery of 5,000 tons of wheat at $ 3 per bushel, no matter what the price of wheat in the market happens to be come May. As a speculator, for purely commercial benefits of trade itself and no interest in actually taking delivery of the product, simply going to sell your contract before delivery to the market price and the difference between the purchase price and sale is the price is the profit or loss.
When you buy a stock, you own part of a company. When you buy a futures contract, simply by entering a new contract. With stocks that pay for the shares at the time of purchase, plus broker commissions. When buying a futures contract, they are just entering the side of the purchase of a contract and not pay the money than the commissions to your broker.
The stock and commodity exchanges are membership organizations established to act as intermediaries between the buy and sell all kinds of merchants, business entities for the small individual trader. The Stock Exchange of action to achieve the capital of investors to companies that need that capital. To facilitate the transfer of property rights (ownership of different companies that offer shares). The exchange of goods acts to get people willing to take risks for the chance to do a considerable amount of money to risk taking. This helps transfer the price risk associated with ownership of various commodities such as soybeans, or a service, such as interest rates, producers.
To buy shares only have enough money in your account to buy the shares plus commissions directly. After the purchase, the money is taken immediately to make the purchase. With futures trading, since they are not actually buying anything, but simply enter into a contract to do so at a later time (due out early to avoid delivery), the broker requires a certain amount of margin (deposit of good faith to cover any potential losses) in what is called a "margin account". Each product has a minimum range of different depending on several factors. Your agent can use the margin of change calculated or require a different margin on there own. If the value of the goods were to decline and is on the side of the purchase contract, your contract has lost value and his agent will notify you if your losses exceed unrealized have gone beyond the minimum margin requirement. This is called a "margin call". Naturally, you want to have more capital than simply the amount of margin when trading futures broker to avoid these calls. The broker has the right (and probably) liquidate your position if you are too close to not having enough to cover losses in order to protect themselves.
By purchasing shares directly, there is no possibility of a margin call. Just own the shares directly. So you may be wondering why anyone would bother buying futures contracts rather than shares, the answer is important leverage.
Leverage gives the trader the ability to control a large amount of money (or product is worth a lot of money) with very little money. For example, if live cattle futures requires a minimum margin of $ 800 to trade one contract and one contract is 40. 000 pounds in the current market price of, say, 75 years, which would control a value of $ 30,000 for a leverage of over 35:1. This is attractive to many merchants and justifies the risk. What is the risk? As leverage can work in your favor, you can work against you in the relationship, Known as "two-edged sword."
You can increase the leverage of trading stocks, if you trade with a margin account. This usually allows you to buy shares in the margin to the normal rate of 50%. So for every dollar you can buy $ 2 worth of stock. The leverage is 2:1. How this works is that the broker is actually "loan" the other 50%. The stock with a margin that can lose more than they have due to leverage and in this case, you may end up getting a "margin call" from your broker if your loss of shareholder value too. Yet trading stocks is not where near the kind of influence it receives in future negotiations.
In some respects are similar, but only minutely so. So let's consider some of the main differences between the two.
Most people have probably traded stocks at one time or another. Usually it is to buy in order to "own" a percentage of a particular company or to liquidate such partial ownership. Pick up the phone to call an agent or online to buy or sell. The order was facilitated through an "exchange" as the New York Stock Exchange, for example.
Buying and selling of futures is similar in this regard. You can call an agent or online to buy or sell futures contracts. The order was facilitated-through exchange of goods, such as the Chicago Mercantile for example. However, while buying a stock that gives part ownership in a company or portfolio companies (such as a fund), the purchase of a futures contract does not give you ownership of a commodity or product. Rather, it simply is entering a contract to purchase the underlying commodity at a specified price at a future date, said in the contract. For example, the purchase of wheat for May at 3.00, just create a contract between you and the seller (which is not necessary to know how this is taken care by sharing) coming May that will take delivery of 5,000 tons of wheat at $ 3 per bushel, no matter what the price of wheat in the market happens to be come May. As a speculator, for purely commercial benefits of trade itself and no interest in actually taking delivery of the product, simply going to sell your contract before delivery to the market price and the difference between the purchase price and sale is the price is the profit or loss.
When you buy a stock, you own part of a company. When you buy a futures contract, simply by entering a new contract. With stocks that pay for the shares at the time of purchase, plus broker commissions. When buying a futures contract, they are just entering the side of the purchase of a contract and not pay the money than the commissions to your broker.
The stock and commodity exchanges are membership organizations established to act as intermediaries between the buy and sell all kinds of merchants, business entities for the small individual trader. The Stock Exchange of action to achieve the capital of investors to companies that need that capital. To facilitate the transfer of property rights (ownership of different companies that offer shares). The exchange of goods acts to get people willing to take risks for the chance to do a considerable amount of money to risk taking. This helps transfer the price risk associated with ownership of various commodities such as soybeans, or a service, such as interest rates, producers.
To buy shares only have enough money in your account to buy the shares plus commissions directly. After the purchase, the money is taken immediately to make the purchase. With futures trading, since they are not actually buying anything, but simply enter into a contract to do so at a later time (due out early to avoid delivery), the broker requires a certain amount of margin (deposit of good faith to cover any potential losses) in what is called a "margin account". Each product has a minimum range of different depending on several factors. Your agent can use the margin of change calculated or require a different margin on there own. If the value of the goods were to decline and is on the side of the purchase contract, your contract has lost value and his agent will notify you if your losses exceed unrealized have gone beyond the minimum margin requirement. This is called a "margin call". Naturally, you want to have more capital than simply the amount of margin when trading futures broker to avoid these calls. The broker has the right (and probably) liquidate your position if you are too close to not having enough to cover losses in order to protect themselves.
By purchasing shares directly, there is no possibility of a margin call. Just own the shares directly. So you may be wondering why anyone would bother buying futures contracts rather than shares, the answer is important leverage.
Leverage gives the trader the ability to control a large amount of money (or product is worth a lot of money) with very little money. For example, if live cattle futures requires a minimum margin of $ 800 to trade one contract and one contract is 40. 000 pounds in the current market price of, say, 75 years, which would control a value of $ 30,000 for a leverage of over 35:1. This is attractive to many merchants and justifies the risk. What is the risk? As leverage can work in your favor, you can work against you in the relationship, Known as "two-edged sword."
You can increase the leverage of trading stocks, if you trade with a margin account. This usually allows you to buy shares in the margin to the normal rate of 50%. So for every dollar you can buy $ 2 worth of stock. The leverage is 2:1. How this works is that the broker is actually "loan" the other 50%. The stock with a margin that can lose more than they have due to leverage and in this case, you may end up getting a "margin call" from your broker if your loss of shareholder value too. Yet trading stocks is not where near the kind of influence it receives in future negotiations.
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