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Why Trade Futures
Stocks Vs. Futures: A side-by-side comparison
By Lan H. Turner, CEO, Gecko Software, Inc.

Take a look at the following two charts.  At first glance, they look somewhat similar, but after taking a closer look, we realize that these are actually two very different markets, yet they are almost exactly the same. 

chart 1:

chart 2:

What's going on here?  Is this a trick?
Not exactly, but there are some very tricky moves being played out here.

Let's take an inside look...
Let's analyze chart number one in a little more detail.  The stock chart is what is known as the Q's; as a savvy stock market guru, the symbol you would use to "look-up" this market would be QQQQ.  You hear the financial television talking heads throw around this market symbol almost every single day.  It's as common in their language as is football, basketball or baseball to the average guy.

chart 1: Stock Market - QQQQ Daily

What are the Q's? 
Well, the Q's are nothing more than a way of trading the NASDAQ-100 Index.  Oh great, that helps, what's the NASDAQ-100 Index?  The NASDAQ-100 Index is simply a collection of stocks all gathered up, then added together into one chart, very similar to a mutual fund, or in this case, a stock fund; simply put, its a composite price of the largest 100 domestic and international non-financial companies listed on The NASDAQ Stock Market. (In stock trader lingo, its known as an ETF, or Exchange Traded Fund.)

Take a close look at this chart, you'll notice that you trade this market just like you would any other individual stock, also notice the last move; it started at 36.54 when we received a buy signal from our Stochastics Indicator, and it ended at 39.92 when we received our sell signal from our Stochastics Indicator.  The profit from this move was $2,620.00 and the initial investment required to obtain that size of a financial reward was $28,281.00; or 774 shares of the Q's; a sizable chunk of change, wouldn't you say?

Okay, that was boring; now are you ready for some excitement?  Take a look at the next chart.

chart 1: Stock Market - NASDAQ 100 (Mini)


What's wrong with this picture? 
This is exactly the same chart right?  Wrong!  This is the NASDAQ-100, Mini contract traded on the Chicago Mercantile Exchange in Chicago.  (That first chart, the Q's, its traded on the New York Stock Exchange.)

Let me tell you something, these boys in Chicago know how to trade.  Look at this chart; the exact same move in the NASDAQ, as the Q's, started when our Stochastics indicator gave us a buy signal at 1493.0, and it ended when the Stochastics Indicator gave us a sell signal at 1624.0.  The amount of profit on that trade was exactly the same as our example above with the Q's, but take a look at that initial investment amount!  Only $3,750.00!  What's that you say?  An initial investment of only $3,750.00 on the futures market, profits the exact same amount of money as a $28,281.00 investment on the stock market? (How long did that take? Oh, sorry, that trade took about 15 days.)

Okay, let's look at it from another point of view, let's compare apples to apples.

Take a look at this chart:

Now what would happen if we invested the exact same amount of money in the futures market as we did in the Q's (stock market).  Let's say we invested $28,281.00, or purchased seven futures mini contracts; our profit on the move in this example would be $18,340.00.  Yup, that's right, $18,340.00 compared to a measly $2,620.00 in the stock market; same market same investment, two extremely different outcomes.  Oh, and yes, that was still that same 15 day trade.  (Now do you see why we like the futures market?)

• Alright, alright, there's got to be a downside to all this right?  It can't be that simple, there's got to be a catch.
   

• What's the catch?  You're right, their is a catch to trading futures, and if you can deal with this one disadvantage in trading futures, then the profit potential is out of this world in comparison to trading the same exact market from the stock market side.
   

• Here it is: When trading futures, you can lose more than your initial investment.  What?  What's that you say?  That's the catch to trading futures; you can lose more than your initial investment, where in the stock market you can't.

Here's an example:  
Let's say you invested your $5,000.00, and you were wrong, and the market turned against you.  In the stock market, or the Q's in this example, the maximum amount of money you could lose would be your initial investment of $5,000.00.  Once the market moved against you that much, you would be done, you would be out, you would have lost your total investment and too bad for you.  Well, in the futures market, you are accountable for ALL your losses, not just your initial investment.  So, if you invest the same $5,000.00 and the market turns against you and you let your losses run all the way up to $10,000.00, before exiting, you loose all $10,000.00 not just your initial $5,000.00 investment.

• Hey, want to know a secret?  How would you like me to tell you how to keep from losing more than your initial investment?  "Don't go on vacation while trading the commodities market!"  Watch your trade and when your wrong, get out before you lose more than you can handle; use stop-loss-orders and risk & money management techniques and strategies.  (Frankly that goes for the Stock Market as well.) Don't know what those are? Get my "Risk & Money Management" CD, where I teach those strategies and concepts!
   

• Okay, that's it, that's the downside to trading futures.  Compare that to the profit potential side, and you decide, weigh the risks vs. the rewards, and you make the decision.

Learn to trade Futures, they trade like stocks on steroids, and of course, might I recommend that you stop by my website, www.TracknTrade.com and pick up a copy of our new "Futures" trading software; Track 'n Trade Pro.  It's the software you see being used in the above examples, and it was specifically designed to help you learn the strategies of getting started trading futures, oh, and its fun too!

Sincerely,
Lan H. Turner, CEO
Gecko Software, Inc.
Developers of Track 'n Trade Pro.