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Chippy

Why Do People Day Trade Stocks????

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Simple question. Why do people daytrade stocks? Why do people not daytrade in the futures market when you don't have to follow the $25,000 rule for daytrading and can make more money if you understand the risk part? Even 1 contract of the ES (S&P 500 mini) can make you more than a stock can and you don't need $25k in the account.

 

I am just looking for logical reasons since I did the switch myself about 4 years ago and haven't looked back. I can trade strictly technical analysis and have a market open 24 hours a day instead of only 8am to 5pm.

 

Comments would be appreciated as I am always interested :)

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Maybe people like to speculate on individual stocks vs. trading the entire S&P. And some think they've learnt to understand the behavior of a particular stock and its idiosyncrasies so they have an edge. This is debatable but I can see some truth to that. I used to be able to predict the cycles of O&G companies (but that was over the medium term) With that said, day trading is mostly technical so in theory you should be able to ignore the underlying asset and trade it just as a price chart. In that case you are 100% correct. I also think stocks are just easier to trade as its taught in school how to buy\sell stocks, etc. My grandma knows how to buy\sell stocks. Learning how to trade futures is much more time consuming ...

 

MMS

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  Chippy said:
Simple question. Why do people daytrade stocks? Why do people not daytrade in the futures market when you don't have to follow the $25,000 rule for daytrading and can make more money if you understand the risk part? Even 1 contract of the ES (S&P 500 mini) can make you more than a stock can and you don't need $25k in the account.

 

I am just looking for logical reasons since I did the switch myself about 4 years ago and haven't looked back. I can trade strictly technical analysis and have a market open 24 hours a day instead of only 8am to 5pm.

 

Comments would be appreciated as I am always interested :)

 

different people see different things in the market...

 

some can see signals in forex,

some can see signals in forex futures but not in forex cash.

some can see signals in options,

some can see signals in spreads,

some can see signals in YM but not ES,

some can see signals in agri

some can see signals in oil

 

some don't see anything no matter how you help them.

 

such is the wonderful life of the free market.

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you can buy as little as 1 share in a stock as opposed to maybe a mini in futures

stocks are likely to have bigger % moves than an index

you can diversify

there are more stocks to look at - a larger universe

 

 

While many of these things dont necessarily apply to day trading.....I think one thing that futures offer - implied leverage is often misused by many - this is not often given in the stocks which saves moany people.

The greatest thing for me about futures and fx is the ability to short without the pain and admin involved when shorting stocks

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  SIUYA said:

there are more stocks to look at - a larger universe

 

The greatest thing for me about futures and fx is the ability to short without the pain and admin involved when shorting stocks

 

I day trade futures; but I also day trade stock options sometimes. Shorting shares can sometimes be impossible but you can always buy a put :)

Depending on the time of day, futures volumes might not offer you a decent trade.

I can then move over to equities for as SIUYA says, "a bigger universe".

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  calsprdr said:
I day trade futures; but I also day trade stock options sometimes. Shorting shares can sometimes be impossible but you can always buy a put :)

Depending on the time of day, futures volumes might not offer you a decent trade.

I can then move over to equities for as SIUYA says, "a bigger universe".

 

I've been wanting to short CRM for sometime now and there is never any stock. The more we talk about this the more I am leaning towards giving up on stocks altogether ... but its just soo easy to press the Buy button! :crap:

 

MMS

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stock shorting is a real pain, and its definitely a different set of skills required, but when mastered (and in the right market) can be very profitable, mainly as markets generally fall faster and harder than they rally.

Plus I guess there is the added bonus of a fall from $100 to $50 is a 50% fall while a rise from $50 to $100 is a 100% rise - which one becomes easier?

I have been in a few short squeezes before when stock gets recalled - never pretty as you just know you are f...d, its a matter of degree. :)

 

In the US there is definitely a lot more availability to short and it seems better facilities to do so, as you definitely need a good stock lender who has a good book for stock loans, otherwise if you are back of the que it can be terrible. I think Australia instigated some of the most draconian short selling prohibitions during the GFC and as always short sellers are demonised when markets go down.

 

I watch a small gold stock here everyday where there is $1000s of dollars of free money with company issued options being sold below parity - except you cant short this stock as there is no one to borrow it from....so you cant take advantage of it.....talk about frustrating :)

 

Plus in the US you do have more derivatives - and liquid derivative markets to be able to buy puts - this is often not available elsewhere...

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I have to agree with Chippy, why Do People Day Trade Stocks????

 

I myself traded stocks for a long time, but when I found out the whole thing of futures, I switched overnight to commodities trading.

 

For all the ones who know nothing about futures and trade stocks only, here's a little info on the power or futures trading.

 

First of all, stocks are traded on a "per share" basis. Futures are traded on a "per contract' basis. In this example I will use the Euro FX, since this is what I use (please note, this is NOT forex, this is still futures).

 

Right now as I'm typing this, the Euro FX is trading at around 1.4495. Now, if I short at 1.4495 and cover at 1.4491, I just made 4 points. Doesn't sound much now, does it? Now check this out. Each point that I made, I get $12.50 (I know, still doesn't sound like much), so for 4 measly points, I just made an even $50. Now comes the best part. Depending on your account, some traders would trade 3 contracts, some 5 and some woulkd trade 10 or more. I personally trade 20 contracts per trade. Each Euro FX contract cost you $500, so if you traded what I trade, you would need to multiply 20 x $500 which equals to $10,000. Thinking about this very seriously now, $10k is not alot of money, and many many traders trade with much bigger accounts their "Stocks" account.

 

So let's do some more math here. 4 points I made x $12.50 = $50 x 20 contracts equals $1,000. How many opportunities do I have a day? I don't know! Reason being, I'm usually done at around noon or so. My average numbers of trades a day is anywhere between 4 and 6.

 

Trading futures really rockks for me. I personally will never go back to trading stocks, but for each his/her own. If stock trading works well for you, good stuff. But know this, the real big players are the futures traders!!!! There are individuald trading daily on gains of $20k ++++ You cannot make these types of gains trading stocks unless you trade a multi million dollar account, and how many do that?

 

Conclusion, futures are stocks on STEROIDS!!! So if you were not successfull trading stocks, you will lose your pants trading futures. It is truly more dangerous than stock trading.

 

Good luck to all:-D

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  emazing said:

Conclusion, futures are stocks on STEROIDS!!! So if you were not successfull trading stocks, you will lose your pants trading futures. It is truly more dangerous than stock trading.

 

and so the question maybe should be -- given most traders will loose - why do they trade futures when they start?

 

IMHO - its because you rattle off the math of picking up 4 points and multiplying it, putting into $ and often people cant see past the prospect of winning big dollars to realise there is more to it.

 

While this actually has little to do with the decision to trade stocks or futures - the real reason you can do what you do is because of the leverage..... and that cuts both ways. it amplifies the losses.

futures definitely have the advantage over stocks for their leverage and their liquidity, but is that a temptation that becomes a curse for many?

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SIUYA, I know some traders taking only 2 measly points which really isn't too difficult. Do that a few times a day and you can make a wonderful living trading these. All depends on the individual. You don't have to take 4 points. I sometimes take more and sometimes less, all deends on the situation.

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emazing - making money is what its all about, and thats the bottom line - if you can do it then great. Taking a few points over and over again does work for some.

 

Without getting in any debate over which is better or worse - stocks or futures, as you mentioned you have done both.....as have I - and each has their advantages and disadvantages

 

Point is both of us do agree that futures can be tough - trading on steroids etc....and yet why do all these ''sales pitches'' seem to imply to the retail guys - trade with the big boys, trade only a few hours a day etc.....when often that is what gets the inexperienced into trouble. A few contracts for most people means nothing in the scheme of the big boys (every tried to move 1000 contracts ??)

 

Too often people want to hop straight into the racing car without first learning to drive.

They overlook the disclaimers surrounding the risks of leverage and focus on the "easy pickings"......

 

I guess I am being a little protective of stocks (my first love) and touchy about the slime bucket shops that prey on fresh meat with the lure of futures being the best thing since sliced bread, with the sales pitches mentioned above. (not that I am implying this is at all related to you)

 

Years ago I worked on the futures floor and hated the egos there, I moved the the equity options floor and lost a lot of the cowboys and joined the thinking mans club. So I guess that could be the alternative sales pitch - ""trade stocks and options for the intellectual buzz, if you want to be a gambler and hang out with the riff raff trade futures - anyone with a small account balance can do that job - it takes a real talent to make money in stocks."" - reverse snobbery - you know it happens! :)

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I fully agree SIUYA. It's just my personal opinion, that once "I" got the taste of futures trading, I will never ever go back to trading stocks. That being said, if someone doesn't trade stocks very well, they should stay away from futures!

 

It can be a very dangerous place --but--- if you ALWAYS have tight stops in place, than you can NEVER really get burned. I mean real burned!

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The only problem I see with taking the 4 ticks on 20 contracts is the times when you get 3 ticks, it reverses and you are down 40 ticks in 5 seconds from a news event. What kind of stop are you using to take 4 ticks profit?

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The futures markets are certainly the most liquid, but I think the draw to stocks is actually the less liquidity and slower speed. I think swing trading stocks is a great way to begin trading as apposed to jumping right into day trading. Of course that's just how I began and is entirely my opinion.

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  TimRacette said:
... but I think the draw to stocks is actually the less liquidity and slower speed. I think swing trading stocks is a great way to begin trading as apposed to jumping right into day trading.

 

Can't agree more... the stocks market-microstructure helps in distinguishable price patterns and prominent regime shifts.

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  TimRacette said:
The futures markets are certainly the most liquid, but I think the draw to stocks is actually the less liquidity and slower speed. I think swing trading stocks is a great way to begin trading as apposed to jumping right into day trading. Of course that's just how I began and is entirely my opinion.

 

 

That is what I have experienced, a lot of new traders don't like the volatility of index markets and prefer the slower pace of equities. I also think because the news media and other outlets focus on equities as an investment it draws more people in.

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Is that true? I would just assume it would be under capital gains tax, which is basically, 28% if you own whatever you are selling for less than a year, 14% if you own it for more than a year.

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Stocks that you hold less than 1 year are taxed at your income bracket level, over 1 year at the capital gains rate, and futures are 60/40 (60% taxed as long term/40% as short term). I'm not a tax expert, but Robert Green's Book, Tax Guide for Traders would be one to checkout.

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  Pony said:
That would mean stocks are taxed at a lower percentage. That may be one reason.

 

LT capital gains tax is currently 15%, short term income tax, for stock that are traded and held for under one year the income tax bracket in which you fall into is what those would be taxed at. Futures

 

25% $32,551 – $78,850

28% $78,851 – $164,550

33% $164,551 – $357,700

 

Futures are taxed 60% at the long term rate (currently 15%) and 40% at your income tax rate. This averages around 20-22%

 

Tax Guide For Traders would be the book to reference on all of this material. There are also updates at Green Trader Tax (I'm not affiliated with GTT, just passing on a good source of information).

 

Tim

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Ahh. I just got "Capital Gains Minimal Taxes, the essential guide for investors and traders - Kaye A. Thomas, for father's day. I hope I'll learn more about it there. I wont get into how much I hate the tax system, and how much I think that's absurd. But I will say I hope Ron Paul get's elected president, although I highly doubt it.

 

Thank you though, I'll check into that. I've written up a business plan with a time line on it, so I'm not really much of a trader yet. If I see something that looks to good to pass up, I'll try it, but right now I'm just using about 10k to swing trade about once a week, and I don't even know how to buy a future or get into the forex. Another book I just got, which is actually next on my list is "Day Trading the Cureency Market" by Kathy Lien. I noticed besides Mark Douglas, most of these authors are women, that seems strange.

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  Pony said:
Another book I just got, which is actually next on my list is "Day Trading the Cureency Market" by Kathy Lien. I noticed besides Mark Douglas, most of these authors are women, that seems strange.

 

Funny you said that, I was listening to a Mirus\Ninja webinar today and one of the slides said women are MUCH more profitable then men at trading! An interesting topic for a new thread I think ...

 

MMS

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