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Stocks, Commodities Futures, Forexes comparison


I have not a lot of trading experience - a little bit of stocks and options trading and I am totally new to futures and forexes. Trying to get a comparison on the best form of investments so I can channelize my efforts accordingly. Appreciate your advice and suggestions .

Based on my perception, I could be wrong, typically a fixed deposit returns may yield upto 7 % or 8 % max.

Stocks and Bonds securities may return a little higher for an experienced trader.

Futures and forexes will give highest returns.

Would it be possible to give ball park percentages for a seasoned trader for comparison purposes ?

Secondly when I purchased intraday data, there was an declaration to be signed that I am a non-securities professional.

Can a non-securities professional trade futures and forexes ? Is using the intraday data for investing for personal profits be treated as "personal use" ?

I am assuming the notion here is to legal declaration or not of using this data to give financial advice or managing others investments. And as such "personal use" means investments for personal profits.

Appreciate your clarifications



  • markdmarkd mod
    edited March 2017
    When you say "best", you have to decide what than means for you. Mainly, you have to know how you respond to bearing risk and how you want to be compensated for the risks you take.

    Futures and forex are highly leveraged - meaning, you are not required to put up the full value of the contract you want to trade. The broker loans you the difference. Higher leverage means higher returns if you are right. But, if the trade moves against you, you have to put up more money to protect the broker's loan to you (they have no interest in sharing your market risk), or bail out and take the loss. The higher the leverage, the sooner that happens. Futures and forex are a true "zero sum" game, that is, for every winner there is a loser. When you buy a contract, some one else sells it to you. If you are right, they lose money. If they are right, you lose. Also, contracts have a limited life span. That forces you to be right within a certain time frame, or roll into the next contract (an additional expense). Keep in mind, most technical analysis tools are right maybe 55-60 per cent of the time, so you will have losses, and sometimes several or more losses in a row. You need up front capital to absorb those losses. Also, commodities futures are traded by people very close to the business - big producers and users of the commodity - who have much superior access to information. They will have the jump on non-pros. They can also push the market to fake non-pros out of their (highly leveraged and therefore vulnerable) positions. That doesn't mean it's impossible - just hard. If you are comfortable with risk and often fast action and you are decisive and "know when to hold 'em, know when to fold 'em" then, given the potential rewards, this might be best for you.

    An alternative to futures is long options on futures. Your timing has to be precise but your exposure is just the capital you put up - no margin calls. Nevertheless, a 100% loss if you are wrong, or even a 50 or 75% loss if get out before expiration, is not insignificant.

    You can also lose money in stocks, but in general they are much more forgiving. A stock is a claim on assets that continues to exist without an expiration date. You can own them outright for any length of time, so even though you should cut your losses if you are a trader, if you don't it may not be fatal. You can hold an underwater position indefinitely without getting a call from your broker (you probably shouldn't in most cases, but you can). You can buy stocks on margin, up to 50%, in which case you are subject to the same rules for making up losses on the loan with cash. Margin bumps up the rewards though, and allows you to take either larger positions or more of them with your available capital. In general, stocks are slower moving and probably pay less per successful trade for the same amount of capital, but are also less risky. They give you more time to make decisions, and bad decisions are less painful (relatively).

    As for returns for each class - if you are a great futures trader, you can make a fortune year after year. If you are great stock trader, you can do that, too. But the bigger your positions get, the harder it is to increase your performance. You have to sell to somebody, and the bigger your position, the bigger your counterpart has to be (or more of them). And the bigger they are, the smarter and better informed they are (usually). But, if you are just starting out, it will be a while before you run into that problem.

    So the bottom line is, trade what you feel most comfortable with. And probably most important, trade SMALL until you start to make money consistently. Capital preservation comes first. Profits come later.

    There are lots of books out there on personal trading experience. Google Van Tharp and Jack Schwager for a list of titles or go to the Stockcharts bookstore.

    Regarding personal vs. professional, I'm not a lawyer, so if you are concerned you should clarify the term with your vendor. But a professional is someone who gets paid for their services. So as long as you are not getting paid to trade or advise, it doesn't seem you could be called a professional. You would need certification to do that legally anyway. Anyone who meets the broker's requirements can trade futures. Google "futures broker" for more information. I don't use TD Ameritrade, but they seem to have a useful site and as far as I know thinkorswim, their futures arm, is well regarded.
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