Why traders prefer equities over futures?

[wsam29]

Here's my take on stocks.

Mom and dad at the local hang out know their stock inside and out, they have an elaberate analysis system the do, whether it be fundamental, technical, hunches, tips, recommendations, etc. ABC stock makes widgets and gadgets and they can foresee the future as to how society will buy these widgets and gadgets which equates to profits for ABC company and their share holders.

Mom and dad can also talk themselves into a buy and hold strategy because widgets and gadgets will always be in demand by society.

Mom and dad cannot and will not admit wrong and fall into a false sense of security because all stocks appreiate in time, as long as they are blue chips that is.

The thought of acknowledging a loss is painful, even on paper, because that is what it is a "paper" loss because of things come back to break even (in their heads that is)

futures...contract between a buyer and seller. Now what would they know about what is causing these two people to trade? What do they know about corn, crude oil, hogs and lumber? Stories of people going bust trading futures and other derivatives adds to the ignorance.

There is a lack of education to begin with because futures are not promoted by banks and other companies due to the nature of the product and the associated risks involved with derivatives.

That's another thing, all derivatives have an expiration date. So the timing needs to be there as well.

[Nick1984]

I tend to see the situation as being:

a) The stock market is much more publicised in the media. The public is more familiar with them and has grown up with them. Here in Australia there's only one TV channel which features talks on futures contracts and thats primarily directed at farmers!

b) People feel more comfortable trading rumours. In stocks news and company announcements play a gigantic role in how you trade stocks (this could apply to commodity futures as well but most ppl here seem to trade financial futures where the markets are quite different).

Soul, i've followed your posts for a long time and I agree whole heartedly with you about price action being king and not relying too much on indicators. I think that yes you can take the strategies you have in financial futures markets and apply them to stock trading however as mentioned earlier you do need to account for the more 'human' aspect of stock trading i.e news and sentiment. Market profiling does work for stocks as well because a stock just like a future is a commodity like any other and we as consumers relate to it in terms of its "value".

[GCB]

I like most, started out in stocks and have moved completely to futures.

Why? Futures are just all around cleaner. They are built for trading. Day trading stocks is like trying to race in cars built for touring. Futures are built for speed.

The only advantage with stocks is that when the overall market is dead in the water there are alway several stocks that are running through the roof or the floor. The problem is finding those stocks before they make their move or as the move is beginning. That's the hard part.

The drawback with futures is the flip side. When the market is going nowhere there's nowhere to go. Unless you want to try oil or Euros. But what's your edge there?

Except for that, futures are better all the way across the board, e.g.:

1) High liquidity.

2) Better margin.

3) Fairer and cleaner fills.

4) No market makers. First come, first served in the e-minis.

5) Easier execution. Either buy or sell. No complicating "sell short" or "buy to cover" commands. Buy 1, then sell 2, and viola! you are short 1.

6) Easier to place limit orders as targets and stops on shorts. Many brokers will not allow you to enter more than one "buy to cover" order for the same shares of stocks. Thus you cannot place both a standing target and stop order for the same shares. Just makes things harder and they are hard enough.

7) No uptick rule on shorts. I once got filled 30 cents lower than my desired price on a market order short on a day traded stock. Needless to say that trade was a loser.

8) Lower commissions.

9) Lower tax rates. 60/40 longterm/shorterm taxation rule on futures.

10) Easier tax prepartion. A 1099 at the end of the year. No need to log all your trades for the IRS.

What did I leave out?

The catch? You trade against the best and they know what they are doing.

[The Bear]

	Quote:	Robert
	I find that most traders start of day trading stocks. What is the main attraction people turn towards stocks? Futures and forex offers more leverage and bang for the buck. Also commission is alot lower when trading futures. Any thoughts on this?

Because most people are investors, not speculators.

[dalby]

good point, bear.

myself- i TRADE futures, but most of investments are stocks (and a smattering of commodities)

futures for me are for speculation. in my trading account. to generate income

stocks are ownership of good companies in order to build longterm wealth

i take profits from my trading account, and put them into longterm stuff - stocks, bonds, gold, etc.

i think many traders eschew futures because they don't understand them, don't want to understand them, and feel more comfortable with a known entity.

and also, as mentioned - one needs to differentiate between investors and traders. a relatively high %age of traders use futures.

a VERY small %age of investors do.

[The Bear]

	Quote:	dalby
	good point, bear. myself- i TRADE futures, but most of investments are stocks (and a smattering of commodities) futures for me are for speculation. in my trading account. to generate income stocks are ownership of good companies in order to build longterm wealth i take profits from my trading account, and put them into longterm stuff - stocks, bonds, gold, etc. i think many traders eschew futures because they don't understand them, don't want to understand them, and feel more comfortable with a known entity. and also, as mentioned - one needs to differentiate between investors and traders. a relatively high %age of traders use futures. a VERY small %age of investors do.

Correct. You explained it. In terms of your activity, you are INVESTING in stocks when you care about the standing of the company (fundamentals), and use it as a wealth building strategy. You actually care about the thing you are investing in. When you put this hat on you are an INVESTOR.

When you start plunging in the futures market...trading for quick large gains (or losses), it is SPECULATION and you've put on your SPECULATOR hat. I could care less about the soybeans I sold or the live cattle i'm liable for. It could even be intermediate term too.

I'm impressed that you can do both. I hope one day I could understand the stock market like that. I still don't know what a PE ratio is. I have enough on my mind currently, to try and not get blown up in the commodities market.

Oh - in my opinion, the investor role doesn't exist in the futures market.

[dalby]

yea, my stock investing strategy is basically the grandma from idaho/warren buffet strategy

buying stocks of good companies with recognizable products, etc.,at good valuation. I also like to do the peter lynch thing and go to the mall and see what's hot.

i am also a firm believer in good management. i bought AAPL and PIXR both when steve jobs took over.

management is essential for longterm health of a company.

[dalby]

a good example of the product that's hot category is CROX

my wife works at a hospital and ALL the nurses started wearing these things

that gave a good heads up to do some DD

this was many many months ago before the stock took off

nurses are a "leading indicator"

[The Bear]

	Quote:	dalby
	yea, my stock investing strategy is basically the grandma from idaho/warren buffet strategy buying stocks of good companies with recognizable products, etc.,at good valuation. I also like to do the peter lynch thing and go to the mall and see what's hot. i am also a firm believer in good management. i bought AAPL and PIXR both when steve jobs took over. management is essential for longterm health of a company.

Grandma from idaho ha ha that's funny. Buy and hold with no stop. But hey, who am I to laugh if grandma's making the gains right? If it works it works.

As far as warren buffet, I have no respect for this guy, because he's 'anti-futures'.

[dalby]

also, grandma from idaho incorporates DCA not just BAH

there has never been a 20 yr period in history where DCA'ing has not been a good strategy , and in most periods it is in the top quintile of asset class performance as compared to real estate, bonds, metals, etc.