Trading Futures vs Stocks: A Comprehensive Guide

Trading futures and stocks can be a thrilling way to invest in the markets, but they're not the same thing.

Futures contracts are typically traded on a specific date, known as the expiration date, whereas stocks represent ownership in a company and don't have an expiration date.

Trading futures involves taking a position on a commodity or financial instrument with a set price and expiration date, while stocks represent a claim on a portion of a company's assets and profits.

The main difference between futures and stocks is that futures are traded on a contract, whereas stocks are traded on a company's underlying value.

Trading futures offers a range of benefits that can help you achieve your investment goals.

You can avoid overnight funding charges by trading futures, which can save you money on fees.

Trading with leverage allows you to control larger positions with a smaller amount of capital.

Hedging your existing positions is a key advantage of trading futures, helping you manage risk and protect your investments.

Futures trading also gives you the flexibility to go long or short, allowing you to take advantage of market trends in both directions.

You can take a position on a wide range of markets by trading futures, including commodities, currencies, and indices.

Here are some key benefits of trading futures at a glance:

Futures positions have no overnight funding charges, making them a preferred choice for longer-term positions.

Futures contracts are leveraged, allowing you to receive increased market exposure for a small deposit - known as margin - and your trading provider loans you the rest of the full value of the trade.

A futures trader puts down a good-faith deposit called the initial margin requirement, which ensures each party can meet the obligations of the futures contract. Initial margin requirements vary by product and market volatility.

Margin can magnify both profits and losses, so it's possible to lose more than the initial amount used to purchase the stock.

One of the most significant costs associated with trading is overnight funding charges, which can add up quickly if you're not careful. Futures positions have no overnight funding charges, while spot positions do.

If you're holding a spot position overnight, you'll be charged for it. This is because spot positions are subject to overnight funding charges, which can eat into your profits.

Futures trading is often preferred by those who want to take a longer-term position on an underlying market, since they won't incur multiple overnight funding fees.

Trading with leverage can be a powerful tool, but it's essential to understand the risks involved. Futures contracts are leveraged, meaning you can receive increased market exposure for a small deposit, known as margin.

Your profit or loss will be determined by the total size of your position, not just the margin used to open it. This means there's an inherent risk that you could make a loss that could far outweigh your initial capital outlay.

To manage your risks, it's crucial to set stops and limits. This will help you lock in profits and limit potential losses. For example, you can set a stop-loss order to automatically close your position if it falls below a certain price.

Here are some key things to remember when trading with leverage:

In the futures market, the initial margin requirement is typically a small percentage of the notional value of the contract, often 3% to 12%. This is different from the equity market, where buying on margin means borrowing money to purchase stock.

Dealing in larger sizes can be a challenge, but futures markets offer a solution. Our futures markets handle a high number of trades every day.

This means that our markets are particularly liquid, which is great news for traders. Liquidity is essential for getting your orders filled at your desired price.

We have a large client base and an international reach, which contributes to our deep liquidity. This is a significant advantage for traders who need to make larger trades.

Our best execution times are also a key benefit of our deep liquidity.

Trading futures and stocks can be approached in different ways. You can go long or short in futures trading, depending on your prediction about the underlying market price.

If you think the price will rise, you'll go long. This means you're betting on an increase in value.

To make a profit, your prediction needs to be accurate, and the market movement should be significant.

When trading futures, you have a wide range of markets to choose from, including indices, commodities, and currencies. With our platform, you can trade the volatility index (VIX) for a spread of just 0.1.

Financial futures include index contracts and interest rate contracts. Index contracts provide exposure to certain market index values, while interest rate contracts provide exposure to a specific debt instrument's interest rate.

Some popular futures markets include the Germany 40, gold, and silver commodity futures, which are often preferred by traders with lower risk appetites. These markets tend to have lower volatility compared to others like the US 500 (S&P 500) futures market, which can be more suitable for short-term day traders.

Here are some examples of the different types of futures markets:

Our platform offers a diverse range of futures and forwards, with spreads among the lowest in the industry.

Markets are a vast and diverse landscape of financial and commodity-based futures that are available to trade. These markets offer exposure to a wide range of assets, from indices and currencies to energy and metals.

Index contracts provide exposure to certain market index values, giving investors a way to bet on the overall performance of a particular market. Financial futures, including index contracts, are a popular choice for investors looking to diversify their portfolios.

Currency contracts allow you to bet on the exchange rate of a real or virtual currency, providing a way to speculate on the value of different currencies. This can be a high-risk, high-reward option for investors who are confident in their currency predictions.

Energy contracts give investors access to the price of common energy items used by businesses and governments. This can be a stable and reliable option for investors who are looking to hedge against price fluctuations in the energy market.

Investors can also bet on the price of metals, such as gold and steel, through metal contracts. These contracts provide exposure to the prices of metals that are used in manufacturing and construction.

Here's a breakdown of the different types of markets mentioned in this section:

Livestock contracts and grain contracts are also available, providing exposure to the prices of live animals and raw grain materials used in animal feed and commercial processing.

Commodity markets offer a wide range of options for traders, including gold, silver, wheat, corn, and oil.

Commodities are often preferred by traders with lower risk appetites due to their lower volatility. For example, trading gold or silver commodity futures can provide a more stable market to navigate.

You can take a position on both hard and soft commodities, including gold, silver, wheat, corn, and oil, giving you a diverse range of options to choose from.

Some examples of commodity futures contracts include:

These contracts provide exposure to the prices of specific commodities, allowing you to bet on their future value and potentially profit from market fluctuations.