There are major differences between trading stocks and trading futures. While stories of fortunes made or lost overnight on the futures markets are largely untrue, the futures trader, if using a sound trading system, can usually generate more money on the futures
sell and build it much faster. However, if that trading system
is not sound the trader may have greater losses.

This is because futures contracts are highly leveraged. Margins (the deposit required) on futures contracts are much less than for stocks, as low as 3% on some futures contracts compared with up to 50% for stocks. As well, futures investors are not charged
interest on the difference between the margin and the full contract worth.

The margins for futures contracts act more as a performance bond or great faith deposit whereas the margin for stocks is more of a loan.

Although the margin on futures contracts is quite small, it rides the
full worth of the underlying contract as that contract rises or falls,
thus furnishing the leverage mentioned earlier.

Commissions charged by futures brokerages are normally much less
than brokerage commissions for other investments.

Futures markets use the open outcry (auction type) method of trading ensuring very public, fair, and workable markets. Plus, it is
much harder to trade on inside acquired skill as so many variables
affect the markets. Also, futures markets are very liquid. Transactions
might be completed quickly, which lowers the risk of adverse advertise moves

If you own stocks you are an owner of the business . This allows you
to share in the companys profits, and losses, through dividends, and
adds or decreases in the stocks assessment of worth . It also gives you certain
voting rights with the business . However, a company can go bankrupt,
leaving you holding worthless stock.

When you buy and sell futures you are only entering into a contract and
dont really own anything. What you have is an agreement to buy a
commodity or financial instrument (wheat or Treasury Bonds for example)
at a specified price at a certain date in the future.

The person on the other side of the transaction has agreed to sell you
that commodity or financial instrument at that specified price by the
specified date. If you sell a futures contract prior to that date you have
offset your position and have either a profit or loss on the trade.

The stock you bought 3 decades ago is the same stock you may buy today.
Futures contracts, on the other hand, have very limited lives. They are
traded in a regular series of contract months referred to as delivery months.

Futures contracts have expiration dates after which no further trading
for that month can take place. The September corn contract you traded last year is not the September corn contract you are trading this year. In fact last Septembers corn contract no longer exists.

Many futures contract many years of the identical commodity trade simultaneously
on the advertise, sometimes even months into the future. The current contract
is called the front month and the other contracts are called the back years. They are called back months even though they are for future decades .

For example, corn trades for the many years of January, March, May, July,
September, November and December. Suppose todays date is August 4, 2000. The current contract month for corn would be September 2000 and so is
called the front month. The months of November and December 2000,
January 2001, March 2001, May 2001 and July 2001 are back years even
though they are in the future and even flow into the next year.
(This might sound confusing but its not ...really)

All of these decades could be traded at the identical time although most of the
trading activity takes place in the front month.

When the current month expires the next contract month becomes the
front month and so on.