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Futures vs Stocks & Options- The Coach's Playbook

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According to the Topstep coaches, leverage, liquidity, and volatility are the three pillars that raise trading futures above stocks or options. Professional investors and day traders alike, turn to the futures markets for their ease of access and low cost of entry; two characteristics that smaller retail traders find appealing too.

 

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It’s Just Cheaper

Were you looking to get on board the recent Tesla rally, but got scared off by the thought of having to put up $1,300 per share? Think about this; if you had simultaneously purchased 1 share of Tesla stock and 1 E-mini Nasdaq futures contract on Monday, July 6, right on the open, then sold both positions on the close Wednesday, July 8, here’s what your results would have been.

  • Tesla
    • Purchase Price: $1276.79
    • Sale Price: $1365.88
    • Profit On 1 Share = $89.19
  • E-Mini Nasdaq
    • Purchase Price: 10347.25
    • Sale Price: 10671.75
    • Profit On 1 Futures Contract: 324.50 x $20 =  $6,490

Even if you had bought a single Micro E-mini Nasdaq contract, which is 1/10th the size of a regular e-mini contract, your profit would still have been 7 times more than the stock purchase.

How Is That Possible?

The potential for profits without having to put up a ridiculous amount of capital is possible through leverage. If a standard futures margin account requires you to put up 5% of the value of the futures contract you’re trading, then your account is leveraged at a ratio of 20:1. That means for every $1 in your trading account you can trade up to $20 worth of product!

It’s not commissions or data fees that make futures so attractive, it’s the potential to earn that 1 or 2 percent growth daily without having without needing a pile of cash upfront to do so. Keep that in mind.

Also, keep in mind that our goal at Topstep is not just to help you get funded; our mission is to help you become a successful trader!

Trade Well!

 

Posted by TopstepTrader on July 09, 2020
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