Forex vs indices

Why do the Pros Daytrade Futures?

The Powerful Advantages of Trading the E-Mini S&P 500 Futures over Stocks, ETFs and Forex.

Have you ever wondered why many traders prefer futures over equities and/or Forex? If your answer is "yes" and you are interested in daytrading this is definitely an article you should take a minute to read. Make no mistake, there are substantial risks involved with futures daytrading and it is not suitable for all investors, but I feel the following 20 points demonstrate the particular advantages of daytrading the E-mini S&P 500 over trading stocks, Forex and ETFs like the SPDRs and QQQs.

1. Efficient Market.

During normal market hours the Emini S&P 500 (ES) futures have a tight bid-ask spread of typically 1 tick or $12.50 per contract. With a current approximate contract value of about $50,000, that comes out to .025% of the contract value, which is one of the best spreads in the trading world. This spread should be considered your cost of entry (not unlike commissions) to enter and exit the market. The wider the spread, the more the trade has to move in your favor just for you to get to break-even.

Depending on the stock or currency pair you are trading the bid-ask spread may be much wider. Also, since Forex firms "create" the market and therefore, the bid-ask spread, they can widen it to whatever they see fit. Even when Forex firms advertise a fixed spread, they typically reserve the right to widen when they see fit. Typically, this spread is anywhere from $15 to $50+ depending on the currency pair and market conditions.

2. Central Regulated Exchange.

All ES trades are done through the Chicago Mercantile Exchange and its member firms where all trades are recorded in an official time and sales. All trades are made available to the public on a first come, first served basis and trades must follow the CME Clearing rules, along with the strict CFTC and NFA rules.

Forex trades occur "over the counter," (off any exchange floor or computer) where there is no centralized exchange with a time and sales report to compare your fill. Traders with different firms can experience different fills even when trades are executed simultaneously. Even more alarming is that in some cases the Forex brokerage firm you have an account with takes the other side of your trade and is therefore "betting" against you. Even for equity trades many stock brokerage firms direct your trades to brokers that give them a "haircut," rebate or kickback for your order or they go to dark pools or are shown to flash traders before made available to the public. Again, this can become a conflict of interest since your order may not be getting the best possible execution.

3. Low Commissions.

ES commissions are only $1.99 (not including exchange, NFA or data fees) per side and larger traders can even lease a membership to further reduce their fees. This low transaction cost allows daytraders to get in and out of the market without commissions significantly cutting into their profits, but of course the more trading you do the more this will impact your bottom line.

While most Forex firms do not charge a "disclosed" commission, they make their money by creating their own bid/ask spread and taking the other side of your trade, typically costing much more than the transaction costs of the ES. The average discount stock brokerage firm charges $5-10 per trade, which can really eat into your potential daytrading profits.

4. Level II Trading.

You can see the 10 best bids and 10 best asks along with the associated volume in real time and you are allow the placement of your order at any price you wish when trading the ES. This transparency of the market’s orders allows ES traders to see where and how many orders have been placed ahead of them. For short term daytraders this information may be very valuable and may be used as an indication of future market movements.

Most Forex platforms do not offer Level II type pricing and for the few that do, since there is no centralized market, it is only the orders that that firm has access to and not the entire market. Also, most Forex firms do not allow you to place an order within a few ticks of the last price or between their posted bid/ask spreads, further limiting your trading abilities.

5. Virtually 24 Hour Trading.

The ES futures market is open from Sunday night at 5p CST until Friday afternoon at 3:15p (it closes from 3:15p-3:30p and also closes daily from 4:30-5p for maintenance). This allows you to enter, exit or have orders working to protect your positions almost 24 hours a day, even while you sleep.

Even with pre and post market trading, the stock market is open less than 12 hours per day, and the liquidity during these sessions are not always good.

6. All Electronic Trading.

There is no trading pit for the ES which means there are no market makers, no locals and no floor brokers and all orders are matched by a computer on a first come-first served basis no matter how large or small they are. This means that all traders see the same level II market and bid/ask spreads with an equal chance to hit them.

While most Forex firms offer electronic trading, some manually approve each order at a trading desk because they are market makers against your orders. Many times larger traders are given preferential treatment and better bid/ask spreads.

7. Leverage.

Of course more leverage is a double edged sword since higher leverage equates to higher risk, but one Emini S&P contract currently has an approximate value of $65,000 and can be daytraded for as little as $500 which is 1% of its total value (about 100:1 leverage). Even if you hold a position overnight, the current overnight margin is only $5,625 which is still less than 10%.

Not all stocks and ETFs are available to be traded on margin, and the ones that can, require at least 50% margin to do so. US regulated Forex firms are not allowed to offer more than 50:1 leverage on the major currency pairs and 20:1 on the other currencies. This high margin requirement may be very limiting to daytraders who are only looking for small market movements.

8. No Interest Charges.

For futures trading the daytrade and position margins do not require you to pay any interest on the remainder of the funds. The $500 posted for daytraders is a performance bond and traders do not pay interest on the remaining value of the ES futures contract. No special type of futures trading account is required to be able to take advantage of the daytrade margins.

Stock traders typically must apply for a special account in order to be able to daytrade and/or trade on margin and for those who can use the 50% margin, they need to pay interest on the other 50% they are borrowing. Forex has a cost of carry associated with its trading which means interest may be charged or paid on positions taken, but in the end this interest is seen as a revenue stream for Forex brokers and works to their advantage.

9. No Pattern Day Trader Rule.

Futures daytrade accounts can be opened with as little as $3,000 and do not have any Pattern Daytrader Rules associated with them. Of course only risk capital should be used no matter what the amount is that you choose to start with.

The SEC describes a stock trader who executes 4 or more daytrades in 5 business days, provided the number of daytrades are more than six percent of the customer's total trading activity for that same five-day period, as a Pattern Daytrader. As a Pattern Daytrader you are required to have a minimum of $25,000 starting capital and cannot fall below this amount.

10. Liquidity.

The Emini S&P futures trade about an average of 2 million times a day which allows for great price action, volatility and speedy execution. At a current approximate value of $50,000, that is over $100 billion changing hands every trading day.

Not all stocks and Forex markets are as liquid which means movements can be shaky and erratic, making daytrading more difficult. Forex firms like to make the claim that the over the counter foreign exchange market trades more than one trillion Dollars in volume per day, but most people don't realize is that in most cases you just traded against your broker's dealing desk rather than the true interbank market.

11. Tax Advantages.

US Futures traders have favorable tax consequences for short term traders since futures profits are taxed 60/40, which means that 60% of the gain is taxed at the maximum rate of 15% (similar to long-term gains) and the other 40% is taxed at a maximum rate of 35% as ordinary income.

Securities positions held for less than 12 months are considered short term gains and taxed at 35%. Of course everyone’s tax situation is different and should consult a licensed accountant for their specific situation.

12. Diversification.

When trading a stock index like the Emini S&P futures your "news risk" is spread out over the entire market. Should a report or rumor come out on an individual stock it should have very little impact on the whole index you are trading.

When you take a position in an individual stock you are susceptible to stock specific risk which can occur without warning and with violent consequences.

13. Safety of Funds.

When you trade the ES you are trading with a Commodity Futures Trading Commission (CFTC) regulated and National Futures Association (NFA) member firm which is subject to the customer segregated funds rules laid out by the US government.

Even with regulated US Forex firms, funds are not considered segregated, so if a regulated firm goes bankrupt clients funds are not offered the same protections as they are in the futures market.

Many ES futures traders only track the ES market and find it is the only chart they need to follow. There are always opportunities and great volume throughout the trading day. When large institutions or traders want to take a position in the market or hedge a portfolio they usually turn to the futures markets to get this done quickly and efficiently. Therefore, why not trade the market the "Big Boys" trade?

Most traders agree that individual stocks and therefore, the market as a whole follow the futures indices, and not the opposite. In fact, many stock traders will have an Emini futures chart up next to the stock they are following. As a stock or Forex trader you may need to scan dozens of stocks or currency pairs for opportunities. Many times specific stocks fall out of favor so volume and, therefore opportunities dry up and traders are forced to find a new stock to trade.

15. Go Short.

There are no rules against going short the ES, traders simply sell short the ES contract in hopes of buying it back later at a lower price. There are no special requirements or privileges you need to ask your futures broker for.

Most stockbrokers require a special account with higher requirements for you to be able to go short. Some stocks are not shortable, or have limited shares that can be shorted. Also, up-tick rules could be re-enforced and in the past the government has put temporary bans on stocks that can be shorted.

16. Direct Correlation.

On average the ES futures are directly correlated to the underlying S&P 500 index in the short and long term. If you pull up an Emini S&P 500 futures chart and compare it to the S&P 500 index chart they should almost look identical.

Double or triple weighted ETFs do not track the S&P accurately over longer periods, and some currency ETFs have credit risks associated with them which could hinder their ability to correlate.

17. Deep Market.

The S&P 500 index is comprised of very actively traded stocks with some of the largest market capitalizations and with hundreds of billions of dollars invested in some fashion in them. With such large dollar values and high trading volume it would be very hard to manipulate its movements.

On the other hand sometimes it is easy to move or even manipulate a particular stock and even a foreign currency market. George Soros has been accused of intentional driving down the price of the British Pound and the currencies of Thailand and Malaysia and many stock "promoters," insiders and markets makers have been convicted of manipulating stocks.

18. Big Players.

The old adages follow the "big boys" and "smart money" are usually true when it comes to trading, and large money managers, pension funds, institutional traders, etc. tend to be very active traders in the futures markets. The S&P 500 futures contract is generally recognized as the leading benchmark for the underlying stock market movements.

Most active equity traders admit they first look to the index futures for an indication of what the stock they are trading might be doing, so why not just trade the leader of the market, the Emini futures?

19. Volume Analysis.

Volume can be one of the most useful indicators a trader can use, those little lines at the bottom of the chart are not just there to look pretty they should be used as another indication of the validity or lack thereof, of a particular move. In other words combined with other indicators and/or chart patterns volume can be used to confirm a move in the market. Most market technicians would agree that a move made on relatively light volume is not as significant as a move made on heavy volume and should be treated accordingly.

Since the Forex market is over the counter (OTC), there is no centralized exchange, no one place where trades take place therefore, there is no accurate record of volume and most, if not all, Forex charts will not show any indication of volume. So what might appear to be a significant move on a Forex chart, may just be a false move on low volume and could not be filtered out if you were looking at a Forex chart.

20. Clearing Reliability.

During the May 6, 2010 "Flash Crash" the Emini S&P futures continued to trade within a reasonable price range reflecting what the cash S&P 500 index was indicating. No trades on the Emini S&P futures were cancelled and all trades cleared.

According to the joint study by the SEC and CFTC, ETFs made up 70% of the securities with trades that were later canceled. Furthermore, there were about 160 ETFs that temporarily lost almost all of their value and 27% of fund companies had securities with trades broken. Had you bought or sold during this event you may had been notified after the market closed that your trade was no longer good and left with potentially dangerous consequences.

As you probably already know trading is hard enough, so why choose a market where the odds are stacked more against you before you even place your first order. The above mentioned 20 points clearly make the E-Mini S&P 500 futures the best choice for daytraders and will give you the most bang for your buck. Before you trade futures, though, please make sure they are appropriate for you and that you only use risk capital.

Online trading has inherent risk due to system response and access times that may vary due to market conditions, system performance, volume and other factors. An investor should understand these and additional risks before trading. Options involve risk and are not suitable for all investors. Futures, options on Futures, and retail off-exchange foreign currency transactions involve substantial risk and are not appropriate for all investors. Please read Risk Disclosure Statement for Futures and Options prior to applying for an account.

*Low margins are a double edged sword, as lower margins mean you have higher leverage and therefore higher risk.

All commissions quoted are not inclusive of exchange and NFA fees unless otherwise noted. Apex does not charge for futures data, but effective January 1, 2015 the CME charges $1-15 per month depending on the type of data you require.

Forex Vs. Stocks.

2.1 Level 1 Forex Intro 2.2 Level 2 Markets 2.3 Level 3 Trading.

3.1.1 Technical Analysis for Forex 3.1.2 Moving Averages in Forex 3.1.3 Identifying Trends in Forex 3.1.4 Resistance & Support 3.1.5 Double Tops And Double Bottoms 3.1.6 Bollinger Bands 3.1.7 MACD 3.2.1 U. S. Dollar 3.2.2 Euro 3.2.3 Japanese Yen 3.2.4 British Pound 3.2.5 Swiss Franc 3.2.6 Canadian Dollar 3.2.7 Australian/New Zealand Dollar 3.2.8 South African Rand 3.2.9 The Employment Situation Report 3.2.10 Unemployment Insurance Weekly Claims 3.2.11 The Fed 3.2.12 Inflation 3.2.13 Retail Sales 3.3.1 EUR-USD Pair 3.3.2 Trading Rules 3.3.2.1 Never Let a Winner Turn Into a Loser 3.3.2.2 Logic Wins; Impulse Kills 3.3.2.3 Never Risk More Than 2% Per Trade 3.3.2.4 Trigger Fundamentally, Enter and Exit Technically 3.3.2.5 Always Pair Strong With Weak 3.3.2.6 Being Right but Being Early Simply Means That You Are Wrong 3.3.2.7 Know the Difference Between Scaling In and Adding to a Loser 3.3.2.8 What Is Mathematically Optimal Is Psychologically Impossible 3.3.2.9 Risk Can Be Predetermined; Reward Is Unpredictable 3.3.2.10 No Excuses, Ever 3.3.3 USD-JPY Pair 3.3.4 GBP-USD Pair 3.3.5 USD-CHF Pair 3.3.6 Leverage 3.3.7 Fundamental Speed Strategy 3.3.8 Carry Trade 3.3.9 Money Management 3.3.10 Forex Futures 3.3.11 Forex Options.

5.1 Short Term 5.2 Medium Term 5.3 Long Term.

Differences Between Forex and Equities.

While the mechanics of trading in the forex market is quite similar to equities in that prices fluctuate based on supply and demand, ever-changing bid and ask prices and the types of orders used by traders are pretty much where the similarities end. One of the major differences between the forex and equities markets is the number of trading alternatives available: the forex market has very few compared to the thousands found in the stock market. The majority of forex traders focus their efforts on seven different currency pairs. There are four "major" currency pairs, which include EUR/USD, USD/JPY, GBP/USD, USD/CHF, and the three commodity pairs, USD/CAD, AUD/USD, NZD/USD. Don't worry, we will discuss these pairs in detail in the next portion of our forex walkthrough. All other pairs are just different combinations of the same currencies, better known as cross currencies. This makes currency trading easier to follow because rather than having to pick between 10,000 stocks to find the best value, the only thing FX traders need to do is "keep up" on the economic and political news of these eight countries.

Quite often, the stock markets can hit a lull, resulting in shrinking volumes and activity. As a result, it may be hard to open and close positions when you'd like to. Furthermore, in a declining market it is only with extreme ingenuity and sometimes luck that an equities investor can make a profit. It can be difficult to short-sell in the U. S. stock market because of strict rules and regulations. On the other hand, forex offers the opportunity to profit in both rising and declining markets easily because with every trade, you are buying and selling at the same time, and short-selling is, therefore, a part of every trade. In addition, since the forex market is so liquid, traders are not required to wait for an uptick before they are allowed to enter into a short position, as is the rule in the stock market. (For more, see: The Uptick Rule Debate)

Due to the high liquidity of the forex market, margins are low and leverage is high. It just is not possible to find such low margin rates in the stock market; most margin traders in the stock market need at least half of the value of their investment available in their margin accounts, whereas forex traders need as little as 2%. Furthermore, commissions in the stock market tend to be much, much higher than in the forex market. Traditional stock brokers ask for commission fees on top of their spreads, plus the fees that have to be paid to the exchange. Spot forex brokers take only the spread as their fee for each trade. (For a more, see Getting Started in Forex and A Primer On The Forex Market .)

By now you should have a basic understanding of what the forex market is, how it works and the benefits and dangers all new forex traders should be aware of. Next we'll take a closer look at the currency pairs that are most widely used by traders in the forex market.

Forex vs CFDs: Their Differences And Similarities.

Contracts for difference (CFDs) and forex have important similarities and differences that traders should be aware of. Both can be quite helpful for the purpose of speculation, and by learning more about the two, investors can decide which one best suits their objectives. In some cases, traders may opt to use both, depending on the situation.

The Basics.

CFDs are contracts between traders and brokers in which they agree to exchange the difference between the entry and exit price of an underlying asset. While these contacts can be used to speculate on the foreign exchange markets, they can also be used to bet on assets like precious metals and oil, in addition to market factors such as indices.

When trading CFDs, investors have significant flexibility in terms of choosing both the currencies they trade and also the increment values they want to use. The profit or loss that investors receive from these arrangements is calculated by taking the difference between the entry and exit prices and multiplying that figure by the number of CFD units.

CFDs may seem sophisticated and complex. Forex, which involves trading different currencies against one another, is a bit more straightforward. This market is also one of the largest available to investors, and it has daily trading volume of more than US$5 trillion (£3.8 trillion). 1) Retrieved 31 July 2017 reuters/article/bis-currency-idUSL8N1BC4PL.

Similarities Between CFDs And Forex.

Both CFD and forex trading avoid the transfer of physical assets. They both trade over the counter (OTC), meaning that their transactions are decentralised and take place through a network of financial institutions. Their trades are also typically executed the same way.

Further, they trade through the same platforms, which has prompted some service providers to offer platforms traders can use for both CFDs and forex.

In terms of access to leverage, CFDs and forex offer access to margin. The margin that investors can harness when trading CFDs is generally stated as a fixed percentage. For example, if a contract has a margin of 10%, that means a trader can put down 10% of the contract’s total market position value and borrow the remainder.

The margin used in forex trading, alternatively, is generally as a ratio, such as 1:5 or 1:10. For example, if a trader has a leverage ratio of 1:5, they can enter into £5 worth of trades for every £1 in their account.

Another similarity between CFDs and forex is that their trading costs are at least partially based on the spread, which is the difference between the entry and exit points.

Differences Between CFDs And Forex.

There are several notable differences between CFDs and forex.

As discussed previously, CFDs offer a bit more flexibility by offering a range of contracts with different currencies and increment values.

Another major difference between the two is their key price determinants. The price of CFDs, for example, depends largely on the supply and demand for the underlying asset being traded. The value of currencies, on the other hand, relies far more on fundamental factors. These can include the strength of key economic indicators and and whatever policies are in place, among other factors.

In addition, the forex market is open 24 hours a day/5 days a week, offering investors around the world access to trade at their leisure. The trading times for CFDs vary based on the underlying market, commodity or asset. You can learn more about those hours in FXCM’s CFD guide.

While CFDs and forex have many similarities, they also have their key differences. By knowing what makes these two different, investors can make better-informed decisions and decide how best to incorporate CFDs and forex into their trading strategy.

Any opinions, news, research, analyses, prices, other information, or links to third-party sites are provided as general market commentary and do not constitute investment advice. FXCM will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

High risk investment notice: Trading forex/CFD's on margin carries a high level of risk and may not be suitable for all investors as you could sustain losses in excess of deposits. Leverage can work against you. Due to the certain restrictions imposed by the local law and regulation, German resident retail client(s) could sustain a total loss of deposited funds but are not subject to subsequent payment obligations beyond the deposited funds. Be aware and fully understand all risks associated with the market and trading. Prior to trading any products offered by Forex Capital Markets Limited, inclusive of all EU branches, FXCM Australia Pty. Limited. Limited, any affiliates of aforementioned firms, or other firms within the FXCM group of companies [collectively the "FXCM Group"], carefully consider your financial situation and experience level. If you decide to trade products offered by FXCM Australia Pty. Limited ("FXCM AU") (AFSL 309763), you must read and understand the Financial Services Guide, Product Disclosure Statement, and Terms of Business. The FXCM Group may provide general commentary which is not intended as investment advice and must not be construed as such. Seek advice from a separate financial advisor. The FXCM Group assumes no liability for errors, inaccuracies or omissions; does not warrant the accuracy, completeness of information, text, graphics, links or other items contained within these materials. Read and understand the Terms and Conditions on the FXCM Group’s websites prior to taking further action.

The FXCM Group is headquartered at 55 Water Street, 50th Floor, New York, NY 10041 USA. Forex Capital Markets Limited ("FXCM LTD") is authorised and regulated in the UK by the Financial Conduct Authority. Registration number 217689. Registered in England and Wales with Companies House company number 04072877. FXCM Australia Pty. Limited ("FXCM AU") is regulated by the Australian Securities and Investments Commission, AFSL 309763. FXCM AU ACN: 121934432. FXCM Markets Limited ("FXCM Markets") is an operating subsidiary within the FXCM Group. FXCM Markets is not regulated and not subject to the regulatory oversight that govern other FXCM Group entities, which includes but is not limited to, Financial Conduct Authority, and the Australian Securities and Investments Commission. FXCM Global Services, LLC is an operating subsidiary within the FXCM Group. FXCM Global Services, LLC is not regulated and not subject to regulatory oversight.

Past Performance: Past Performance is not an indicator of future results.

Copyright © 2017 Forex Capital Markets. All rights reserved.

Should You Trade Forex Or Stocks?

Today's investors and active traders have access to a growing number of trading instruments, from tried-and-true blue chips and industrials, to the fast-paced futures and forex markets. Deciding which of these markets to trade can be complicated, and many factors need to be considered in order to make the best choice.

The most important element may be the trader's or investor's risk tolerance and trading style. For example, buy-and-hold investors are often more suited to participating in the stock market, while short-term traders, including swing, day and scalp traders, may prefer markets where price volatility is more pronounced. In this article, we'll compare investing in the forex market to buying into blue chip stocks, indexes and industrials. (Learn about the forex market and get to know some beginner trading strategies; check out Forex Trading: A Beginner's Guide .)

The foreign exchange market is the world's largest financial market, accounting for more than $4 trillion in average traded value each day as of 2011. Many traders are attracted to the forex market because of its high liquidity, around-the-clock trading and the amount of leverage that is afforded to participants.

Blue chips, on the other hand, are stocks from well-established and financially sound companies. These stocks are generally able to operate profitably during challenging economic conditions, and have a history of paying dividends. Blue chips are generally considered to be less volatile than many other investments, and are often used to provide steady growth potential to investors' portfolios.

Want to start trading stocks? Check out which online broker offers the best tools here.

Volatility is a measure of short-term price fluctuations. While some traders, particularly short-term and day traders, rely on volatility in order to profit from quick price swings in the market, other traders are more comfortable with less volatile and less risky investments. As such, many short-term traders are attracted to the forex markets, while buy-and-hold investors may prefer the stability offered by blue chips.

Leverage is another consideration. In the United States, investors generally have access to 2:1 leverage for stocks. The forex market offers a substantially higher leverage of up to 50:1, and in parts of the world even higher leverage is available. Is all this leverage a good thing? Not necessarily. While it certainly provides the springboard to build equity with a very small investment - forex accounts can be opened with as little as $100 - leverage can just as easily destroy a trading account. (For more insight, see Forex Leverage: A Double-Edged Sword .)

Another consideration in choosing a trading instrument is the time period that each is traded. Trading sessions for stocks are limited to exchange hours, generally 9:30am to 4pm Eastern Standard Time, Monday through Friday with the exception of market holidays. The forex market, on the other hand, remains active round-the-clock from 5pm EST Sunday, through 5pm EST Friday, opening in Sydney, then traveling around the world to Tokyo, London and New York. The flexibility to trade during U. S. Asian and European markets, with good liquidity virtually any time of day, is an added bonus to traders whose schedules would otherwise limit their trading activity. (Just because the forex market trades 24 hours a day doesn't mean you have to. See How To Set A Forex Trading Schedule .)

Stock market indexes are a combination of similar stocks, which can be used as a benchmark for a particular portfolio or the broad market. In the U. S. financial markets, major indexes include the Dow Jones Industrial Average (DJIA), the Nasdaq Composite Index, the Standard & Poor's 500 Index (S&P 500) and the Russell 2000. The indexes provide traders and investors with an important method of gauging the movement of the overall market.

A range of products provide traders and investors broad market exposure through stock market indexes. Exchange-traded funds (ETFs) based on stock market indexes, such as S&P Depository Receipts (SPY) and the Nasdaq-100 (QQQQ), are widely traded. Stock index futures and e-mini index futures are other popular instruments based on the underlying indexes. The e-minis boast strong liquidity and have become favorites among short-term traders because of favorable average daily price ranges. In addition, the contract size is much more affordable than the full-sized stock index futures contracts. The e-minis, including the e-mini S&P 500, the e-mini Nasdaq 100, the e-mini Russell 2000 and the mini-sized Dow Futures are traded around the clock on all-electronic, transparent networks. (To learn more, check out Forex Minis Shrink Risk Exposure .)

The volatility and liquidity of the e-mini contracts is enjoyed by the many short-term traders who participate in stock market indexes. The major equity index futures trade at an average daily notional value of $145 billion, exceeding the combined traded dollar volume of the underlying 500 stocks. The average daily range in price movement of the e-mini contracts affords great opportunity for profiting from short-term market moves.

While the average daily traded value pales in comparison to that of the forex markets, the e-minis provide many of the same perks that are available to forex traders, including reliable liquidity, daily average price movement quotes that are conducive to short-term profits, and trading outside of regular U. S. market hours.

Futures traders can use large amounts of leverage similar to that available to forex traders. With futures, the leverage is referred to as margin, a mandatory deposit that can be used by a broker to cover account losses. Minimum margin requirements are set by the exchanges where the contracts are traded, and can be as little as 5% of the contract's value. Brokers may choose to require higher margin amounts. Like forex, then, futures traders have the ability to trade in large position sizes with a small investment, creating the opportunity to enjoy huge gains - or suffer devastating losses.

While trading does exist nearly around the clock for the electronically traded e-minis (trading ceases for about an hour a day to enable institutional investors to value their positions), the volume may be lower than the forex market, and liquidity during off-market hours could be a concern depending on the particular contract and time of day.

While outside the scope of this article, it should be noted that various trading instruments are treated differently at tax time. Short-term gains on futures contracts, for example, may be eligible for lower tax rates than short-term gains on stocks. In addition, active traders may be eligible to choose the mark-to-market (MTM) status for IRS purposes, which allows deductions for trading-related expenses, such as platform fees or education. In order to claim MTM status, the IRS expects trading to be the individual's primary business; IRS Publication 550 and Revenue Procedure 99-17 cover the basic guidelines on how to properly qualify as a trader for tax purposes. It is strongly recommended that traders and investors seek the advice and expertise of a qualified accountant or other tax specialist to most favorably manage investment activities and related tax liabilities. (Trading forex can make for a confusing time organizing your taxes. These simple steps will keep everything straight. Check out Forex Taxation Basics .)

The internet and electronic trading have opened the doors to active traders and investors around the world to participate in a growing variety of markets. The decision to trade stocks, forex or futures contracts is often based on risk tolerance, account size and convenience. If an active trader is not available during regular market hours to enter, exit or properly manage trades, stocks are not the best option. However, if an investor's market strategy is to buy and hold for the long term, generating steady growth and earning dividends, stocks are a practical choice. Regardless of which instrument(s) a trader or investor selects, the decision should be based on which is the best fit.