"Tricks of the Trade" Seminar
"Why futures are different from equities"

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Futures trading tends differs from equity trading for the following two reasons:

  • Leverage
    The FTSE 100 Index futures contract at current prices is worth nearly £100,000. However, to control this amount of equity requires a deposit of merely about £3,000. This represents a large degree of leverage. Put another way, this means that a relatively small movement in the futures contract can be worth a fair amount of money.
  • Closer Bid-Offer Spread
    The bid-offer spread in futures tends to be much closer than for equities. This means that it costs less to do a trade.
  • Shorter Time Frame
    The net result of the above two facts means that in general one can profit from smaller moves than one would normally be able to with trading equities. This means that many futures traders tend to focus on a shorter time-frame for trading that they would for equities.
  • Each Trader Should Discover His/Her Own Preferred Time Frame
    Whilst this means that it is possible for traders to profit from a short time horizon than would normally be possible for an equities trader, it is up to each individual trader to discover their own peferred trading time frame. There are almost as many different ways of trading as there are market traders and there is not necessarily any one "right" way of trading or any one correct time-frame to trade on. Obviously, some time-frames are excluded to traders such as trying to trade on a few minute time frame when trading off the floor, but there is a large spectrum from ten minute trades through to ten month trades to chose from. Find one that you feel comfortable with.
  • Why I prefer trading on a Short Time Frame
    I personally trade on a short time frame, typically day trading only, though I will consider holding some trades over-night. The reasons why I prefer this time frame are:
    1.Whatever happens in the markets I am out at the end of the day: I can fix myself a stiff gin & tonic and walk away and forget about it all. I don't care what happens on Wall Street or whether World War III is declared over-night as I don't have a position. I am starting each day afresh
    2.A trend follower has to capture the occasional large trending move in the market for a profit to be made. This is necessary to make up for all the small losses that are incurred whilst looking for or waiting for this trend to happen. A day trader does not have to rely on market conditions in the same way. The chances are that there will be something that can be profited from in the markets most days. One is therefore less reliant on market conditions that if one were a trend follower.

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