Futures vs Stocks

      Many investors have stock accounts and feel comfortable purchasing shares of a particular company or an exchange-traded fund (ETF). However, when it comes to trading, there are some advantages to trading futures contracts instead of equities.

      1. Leverage

      • Whether you are buying shares of an individual company or an ETF, one must have an initial minimum deposit of 50% of the total asset being purchased.
        • For example, buying 100 shares of IBM at $30 ($3000 total purchase) would require a minimum of $1500 of available cash.
      • Futures traders that hold a position overnight are required to post a margin deposit (also called a “performance bond”) associated with that specific contract.
        • For example, buying 1 Emini-S&P Futures contract (total value of about $50,000) would require approximately $5600 (as of March 31st, 2010). While these overnight margin requirements are subject to change, this example shows a minimum deposit of closer to 10% of the total asset being purchased.
      • Day-trading futures (defined by not having a position when the market closes) requires even less margin.

        Please consider the implications of leverage can be positive or negative depending on if the trade is a winner or loser.

      2. Tax Considerations

      • Securities such as ETFs are taxed on a very different basis than are E-mini stock index futures. Traders should consult their tax attorney for information application to their situation, but as a general rule, gains on ETFs are treated as capital gains.
      • The tax on these capital gains would vary depending on the holding period, but futures fall under Section 1256 of the tax code. This means 60% of the gains are treated as long-term capital gains and 40 percent of the gains are treated as short-term capital gains regardless of the holding period.

      3. Additional Advantages

      • Beyond leverage and tax considerations, there are a number of other advantages to trading futures over stocks such as liquidity. To learn more, watch the introductory video below.


      Copyright © 2022. All rights reserved. NinjaTrader and the NinjaTrader logo. Reg. U.S. Pat. & Tm. Off.

      Learn more about NinjaTrader Group, LLC Affiliates.

      Futures, foreign currency and options trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing one's financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results. View Full Risk Disclosure.

      The trading of virtual currencies and Bitcoin futures carries additional risk. Prior to trading virtual currencies, please view NFA & CFTC advisories providing more information on these potentially significant risks.