Advantages of Trading Futures vs. Stocks

No pattern day trader rule or minimum balance requirement

Stock traders using margin must maintain a balance of $25,000 to actively day trade as required by the Pattern Day Trader (PDT) Rule. When trading futures vs. stocks, there are no rules requiring a minimum account balance or restricting how many trades you can place in a week. As a futures trader, you can trade long or short multiple times a day or week without worrying about day trading restrictions. 

All futures trading relies on margin, which is essentially a good-faith deposit required to control a futures contract that enables future traders to buy and sell with greater leverage.

ACH and debit card transfers are subject to a $5.00 minimum.

Leverage

One of the key benefits of futures trading vs. stocks is leverage. When buying or shorting stocks, most only offer 25% day trading or 50% overnight margin. With futures, you can put up less than 5% to control a position that represents a major market index or commodity that allows for potentially greater profits. But with greater leverage comes increased risk and the potential for large losses. Make sure you always have a risk management plan in place when trading leveraged futures.

No issues with shorting

One of the biggest challenges stock traders face every day is the inability to short stocks and ETFs easily and consistently. This is often caused by a shortage of available long positions at a supporting brokerage, which are needed to borrow those shares for a trader to enter a short position. With futures trading, entering a short position is seamless. Every future can be shorted for any number of contracts at any time. 

Diversification

Futures provide exposure and simplified access to a wide variety of financial markets and commodities that may otherwise be difficult to trade through individual stocks. In addition to major market indices like the E-mini S&P, Nasdaq, and Dow Jones, you can trade markets that affect our everyday lives like crude oil, gold and silver, bonds, coffee, and many others. Overall, futures contracts offer greater diversification than other types of highly correlated investments and allow you to take advantage of more trading opportunities. 

24-Hour trading

If you want to trade where the action is, then look no further than futures trading in a global marketplace. Unlike stocks and ETFs, with limited trading hours and often limited trading volume, the primary futures markets are often highly liquid and tradable nearly 24 hours. This provides market opportunity around the clock, allowing you to react to overnight news and trade on your own schedule.

Tax advantages

One of the most substantial benefits of trading futures vs. stocks is the tax advantages. All stock trading profits in which the stock is held for less than one year are taxed at 100% short-term gains, whereas all futures trading profits are taxed using a 60/40 rule: 60% of gains are taxed as long-term, and 40% of gains are taxed as short-term. This can be a considerable benefit for profitable traders. Consult your tax advisor for more information.