<re: Futures vs. Stocks>
Yitz,
Futures are a bit of a different animal than stocks. You have a lot more truly technically-oriented people trading them, and in my opinion you need to be "better" (i.e. more knowledgeable, more skilled, disciplined) in order to trade them successfully. There is a lot more leverage, which allows less margin for cockpit error. If trading stocks were like driving a Porsche, then trading futures would be like piloting an F-18. A few mistakes, and you're dead -- unless you really train yourself well to prevent it. That's why a tremendous % of new traders "blow out" in Chicago. IMHO, it can be much more treacherous than stock day-trading - but like many things, it all depends on how you approach it. Most "surviving" futures traders tend to be very careful, cautious, and meticulous sort of people. Or, they grew up in a family where they "learned" over a long time period, either as on-floor traders, or off.
For the amount of work I used to put into trading futures, you can make a fortune trading stocks. There are some advantages though, and certain markets are better to trade than others. The long Bond (CBOE) is a beautiful market to trade -- but watch out for those limit moves, and it is riskier than just about ANY stock to hold overnight (well, there is the Globex, but...). There is so much more leverage and sensitivity to any one of a zillion global-type events, you can easily be wiped out overnight, and end up owing them a lot of money.
The Futures market were originally designed to "hedge" crops, and evolved into a mechanism for hedging all kinds of things - like the risk of holding a portfolio of stocks. Designed for, and still works great for very large funds, businesses holding commodities like Grains etc. -- but not necessarily the optimum trading vehicle. I've come to believe that stocks provide PLENTY of leverage - there's more than enough "rope" there to either (a) hang yourself, or (b) become very wealthy. Who NEEDS more leverage? Only the big funds and institutions, really. Even the farmers only "gamble" with them, anymore...
I just visited a friend in L.A. a few weeks ago who runs a sizeable futures brokerage. He has a client in Europe, a very skilled trader, who had run a $100k account up to $1.5M in about a year -- quite a feat. One morning last fall he woke up wiped out, owing the brokerage $400K, due to a series of limit moves in the financial markets (around the time LTCM got wiped out). This sort of story is not that unusual in Chicago.
Futures are really rigged a bit. In the pits, you have "the locals", who are like market makers that can see the book (order flow). They have a million and a half ways to clean the off-floor trader's clocks (and, when that's not possible - each other's :). Many of them drive fancy cars and live in big houses in exclusive neighborhoods. Guess who pays for that? (did you ever hear of the book, "but where are the CUSTOMER'S yachts?"). And you thought the Nasdaq MM's were bad? But with a pit-based trading system, they are another disadvantage you face - much worst than the specialists on the NYSE.
That being said, if you approach it correctly, it is possible to make money consistently trading the various futures contracts - but you'll be in the minority even more so than with Day Trading stocks. Despite that, I still enjoy trading the S&P's and the Bonds. They are awesome trading vehicles for those wishing to test their Black-Belt status, and I do believe they'll make you a better trader. But I would recommend first mastering stock trading, especially money management aspects, first. Holding just a couple of S&P 500 futures contracts, despite the miniscule margin requirement is roughly the equivalent of trading a 10,000+ share position in YHOO - except YHOO is "easy" to trade, relative to the Spoos...
The way our friend-of-thread over at IntelligentSpeculator.com trades the S&P's, scalping like a knife-fighter with very tight stops, the risks are much lower. But very few that venture into futures-trading are able to maintain that kind of discipline -- the lure of quick riches provided by all that leverage is just too great. Over there, when the market "teaches you the wrong behavior", the consequences are a lot greater than in stocks.
I guess that doesn't read like an advertisement from the CME! <G>
-Steve |
