Day Trading Stocks vs. Trading Futures

Trading index futures, such as the E-Mini S&P 500 (ES), offers more bang for the buck as compared to trading stocks. Traders who can successfully make two to four ES points consistently can eventually increase the amount of traded contracts. In addition, futures commission charges are generally much lower than stocks, with current round-turn costs averaging just above $4.00 plus exchange fees. Perhaps the most significant difference between stocks and futures is accessibility. Day trading stocks requires a $25,000 account minimum. E-mini trading accounts can be established for as little as $2,000. However, $5,000 is the industry standard. Also, the leverage ratio in futures allows for quicker profits. Waiting for a stock to move one dollar compared to a few ticks in futures will likely take longer. The leverage structure of futures contracts, compared to stock shares, allows traders to quickly exploit price fluctuations.

Additionally, traders who live outside the U.S. or Europe may have limited access to stock indices as compared to index futures. For example futures equivalents exist for indices like the Dow Jones, FTSE futures and large S&P. Another factor facing international traders is time – stock trading is limited to just 7.5 hours a day in the U.S. compared to futures, which is almost 24 hours a day.

Stock trading can be more stressful than futures trading. Waking up early to keep track of multiple charts, screens, news events, alerts and related indices can be time consuming and tedious. Who wants to spent hours performing research and technical analysis to find the best performing stocks? Everyone has a differing opinion and research can lead to multiple conclusions. Successful futures trading, using only one clean chart, can lead to the same income in much less time without the extensive research. Also, traders can count on the liquidity of the E-Mini being more consistent than a stock, which may have a strong, sudden movement due to a press release (company released report) followed by long periods of stagnation. Many E-Mini traders will simply keep an eye out for scheduled news events and stay out until the spike in activity has subsided. Also, when a news event comes out, the E-Mini’s price moves much less compared to a stock equivalent.

As a way to avoid sudden and substantial loss, futures trading implements stop loss orders. These orders serve as safety nets when markets turn around unexpectedly, contrary to the desired direction. Some stock brokers allow stop losses, however, the implementation may rely on human involvement instead of mechanical placement. Market orders for electronic futures traders are regarded as seemingly instantaneous. Futures exchanges guarantee the execution of each trade. The same cannot be said for trading stocks.

When trading futures, there is just as much potential to benefit from bearish price movement. Futures trading allows traders to buy or sell (bear or bull market), whereas trading shares is subject to the up-tick rule (a stock has to move up one tick before it can be shorted). Short positions are always available to futures traders.