Futures or Equities?
This is one question which bothers every novice trader. When one enters the market, the first thing he hears before depositing funds in the market is how margin trading can fulfill all his dreams and desires. For him, the words "Futures and Options" open the doors towards financial freedom and towards prosperity. As many have realized in the past, Futures and Options route is one of the most destructive ways to financial freedom. However, for some, it indeed is the most desirable way to participate in the market. So, why is it that Futures for some is boon and for others is curse?
I strongly believe that Psychology is far more important than Methodology. Methodology in this case includes your system and trading instrument (Futures, Equities). Hence, in most of the cases it is the trader's psychology which prevents him from participating in Futures. I have seen many well funded traders unable to take positions in Futures and at times this is nothing but psychological barrier. Just think, if you know the stock is going to behave in a certain manner, then how would it matter whether you trade in Futures or Equities? The problem of trading in Futures only arises if you have limited funds available. In that case, Equities is the best option.
As far as my trading goes, I never feel the difference if I am holding Equities or Futures. When I hold futures, I can sleep as well as when I hold equities. In my opinion, anyone who is properly funded and does not trade futures is missing out on the calculative advantage of margin trading. In most of the cases, this is mainly due to lack of proper planning. Here, I'll be giving out a systematic approach (series of questions to answer) to solve this problem for those who experience this barrier.
A) Are you Well Funded?
B) Do you have a Trading Plan?
C) Do you have a specific Entry point?
D) Do you have a specific Exit Point?
E) Do you understand 'R' of your system?
E) Are you afraid of Gap down?
In my opinion, if you have answered Questions A to E as Yes, then you must simply start trading futures from tomorrow. As far as "F" is concerned, since you will have a specific exit point, you would know when and where to get out. Having psychological barrier is very common and getting rid of this barrier is what differentiates an expert trader from the rest. If you know how to use calculated leverage, then use it. By not using it, you are limiting equity growth and your growth as a trader.
Tc.
