| There are reasons why a day trader would prefer | | | | The ease and psychology of two-sided trading... |
| Eminis over day trading stocks, and vice versa. Here | | | | Stocks are a bit difficult to short due to the "up-tick" |
| are a few major considerations. | | | | rule (which means a stock has to move up one tick |
| The edge... | | | | before you can short it). And there is a view widely |
| Stock trading can take advantage of the small and | | | | held by retail traders that shorting a stock is not the |
| variable lag time between stocks and the futures. | | | | most "wholesome" thing a person can do. (But |
| This can give a day trader who is trading stocks an | | | | actually, short positions are "squeezed" in uptrends so |
| edge, especially if he/she is a scalper. And, if you are | | | | they provide additional "fuel" for uptrends. After all, a |
| trading a liquid stock which is highly correlated to the | | | | price rally normally doesn't stop until most of the |
| Dow or S&P500, it's possible to latch on when a | | | | buyers have bought and most of the shorts have |
| "buy program" hits the market. | | | | been squeezed out. Take the shorts out of the |
| This variable lag, however, explains why the Eminis | | | | equation and rallies are not as sustainable.) |
| often times give more accurate support and | | | | Day trading the Eminis is not hindered by an up-tick |
| resistance levels than stock market indices or | | | | rule. Going short is as easy as going long. And as far |
| individual stocks. Since the stock index futures lead | | | | as I know, there's no stigma attached to shorting the |
| the stock market, they're not constantly lagging | | | | eminis. In fact, most professional stock index futures |
| behind, playing catch up, or over-shooting a leader's | | | | traders I've met prefer shorts over longs. Maybe it's |
| path, as the stock market is. The Emini's movements | | | | because the public is more comfortable making |
| are more pure, reflecting supply and demand instantly | | | | money on uptrends. |
| and accurately. | | | | Preparation to trade... |
| The leverage and size... | | | | Trading stocks doesn't necessarily involve stock |
| Trading stocks allows you to use less leverage and | | | | fundamentals. But stock fundamentals, including the |
| reduce your trading size to a level that may be more | | | | stock's "story," can help determine whether you |
| comfortable for some traders. | | | | want to favor longs or shorts. For instance, if you're |
| Trading one contract in the Emini's carries a hefty bit | | | | trading the stock of a company that has just |
| of leverage that some traders may not want. On the | | | | announced a cure for cancer, you might favor the |
| other hand, many traders prefer the futures | | | | long side. But you've got to dig and read excellent |
| leverage. | | | | sources to find good fundamental stock info. And |
| The liquidity... | | | | even if you're not trading with stock fundamentals, |
| If you are trading stocks, you may have noticed that | | | | you've still got to search hundreds of stock charts |
| many individual stocks are not very liquid, at least not | | | | for technical setups and chart patterns. This can take |
| liquid enough for the kind of defensive day trading I | | | | hours per day. |
| do. To use my crucial rule, "every trade starts out as | | | | Day trading the eminis doesn't necessarily involve |
| a scalp until proven otherwise," you have to trade | | | | anything like stock fundamental analysis. I don't even |
| something that is extremely liquid, or slippage will ruin | | | | pay attention to the content of important news |
| you. However, if you are interested in trading stocks, | | | | releases, such as the Fed's decisions on interest |
| there are some stocks that do have excellent | | | | rates. I just keep track of when the important |
| liquidity. | | | | reports are scheduled, and I get out of their way |
| The Eminis are one of the most liquid markets in the | | | | until after the news hits. When the news hits, there |
| world, with very little slippage. | | | | are usually two false moves. Then a decent trend |
| The professional competition... | | | | often emerges, and I try to get on board. With no |
| The NYSE stocks trade in a pit with specialists taking | | | | stock fundamentals to consider, and only the same |
| advantage of the spread, scalping with minimal costs | | | | charts to analyze each night, I save myself hundreds |
| per trade, a huge advantage over the public. The | | | | of hours of work each year. |
| playing field is not level. Specialists are not in business | | | | Taxes... |
| to lose money.(The Nasdaq stocks, however, trade | | | | I'm not an expert on taxes, but one thing is for sure, |
| electronically, eliminating these problems.) | | | | it's much easer to prepare your own tax forms if |
| Emini's are traded electronically without a pit and | | | | you're trading the Eminis than if you are a taxpayer |
| without locals taking advantage of the spread. (The | | | | who is making a living trading stocks or exchange |
| Maxi contracts are still in the pit, but the Eminis | | | | traded funds (like the Spyders and QQQQ's). There |
| appear to be leading the Maxis now, so there doesn't | | | | may also be some dollar tax advantages. Check with |
| appear to be direct competition between scalpers of | | | | your tax adviser, of course. |
| the Eminis and the locals in the Maxis pit.) It's true | | | | Size of your trading account... |
| that big Emini traders who own a seat on the | | | | Trading stocks requires a $25,000 minimum in your |
| exchange and trade "size" have a cost advantage, | | | | account. I guess the government stepped in to |
| but by historic standards, their costs are not much | | | | protect us from ourselves. |
| lower than the "retail" traders. Any Emini trader can | | | | You can trade the Eminis with as little as $2,000 in |
| now trade a "round turn" (buy and sell combined) for | | | | your trading account, which makes it possible for just |
| $4.80 per contract. And retail costs have been | | | | about anyone to day trade the Eminis. |
| dropping. They'll probably continue to fall. | | | | |