Written by Marv Eisen
There are significant benefits of eminis over stocks. Day traders in particular will appreciate the benefits of trading emini futures instead of trading stocks. In this blog post, I’ll cover some of the benefits that traders will appreciate. For example, eminis offer more hours to trade, are more liquid than stocks, and have fewer day trading restrictions than stocks. Trading eminis also give traders more leverage so they can control a large asset with a small amount of capital. Eminis also allow traders to sell short as easily as going long. Let’s examine the benefits of trading eminis over stocks in more detail.
Compared to institutional traders, day traders need an edge, and one such edge is haveing the benefit of trading eminis over stocks. The advantages of eminis over stocks will be appreciated with the information in this blog post.
Benefits of Day Trading Eminis
Stock traders are subject to some trading restrictions that are not imposed on emini futures traders. These restrictions on trading stocks often mean that the stock trader will miss an opportunity to trade when presented with a profitable opportunity. Missed opportunities can be costly, so let’s look at some of the restrictions in the United States for day trading stocks and compare them to day trading with futures.
Minimum Account Size
Emini futures traders have the benefit of not being subject to the pattern day trading rule. A pattern day trader is a regulatory designation for those traders or investors that execute four or more over the span of five business days using a margin account. A pattern day trader who executes four or more round turns in a single security within a week is required to maintain a minimum of $25,000 in their brokerage account. Emini traders are not required to meet this minimum account size.
Margin
Another benefit of eminis over stocks is margin requirements. A stock trader can only trade up to four times their maintenance margin on an intra-day basis. So if they have $30,000 maintenance available, they can only trade up to a value of $120,000. Exceed this amount and margin calls may further limit buying power and trading frequency. With eminis, that same margin can afford traders the ability to trade a much larger notional value.
No Short Sale Restrictions
Another benefit for day traders of eminis over stocks is that in order to short a stock, there must be shares available to trade. And many times, shares of the stock are not available. In comparison, an emini futures trader does not have the same short sale restrictions. Emini traders can take a short position as easily as a long position. This allows emini traders to trade in down markets when short-selling opportunities are highly profitable.
Another Benefit of Eminis Over Stocks
No Minimum Tick Restriction
Having the ability to sell short is a very important benefit of eminis over stocks. When a stock trader shorts a stock, they are required to sell at a minimum of a tick above last traded price. This means in a down-trending market, a stock trader who is looking to make a short sale may never get the order executed and so will not be able to take a short position, thus losing out on a market opportunity. But a futures trader can be short the market just as easily as being long.
Benefit Of Trading Eminis Over Stocks Is Clear
An emini futures trader can evaluate the market in up as well as down days, and trade long or short multiple times a day – or week – and not have to worry about day trading restrictions applicable to stock traders or the ability to take a short position in the market.
Another Benefit Of Eminis Over Stocks
The Benefit of Liquidity
Liquidity is perhaps one of the most important benefits in traders’ ability to seek opportunities in a market.
Simply stated, liquidity is the collective expression of traders’ opinions on the market.
Like any other market, these opinions are represented in a futures market either as existing positions held by traders, known as open interest, or as buy or sell orders communicated to the rest of the market but yet to be executed.
The size and price of these orders may vary to large extent, but the key benefit to traders is that the more opinions that are expressed in the market, the more liquid the market is.
Liquidity is such an important element of market opportunity because the more traders there are, the greater the number of orders, the greater the likelihood that a single trader will find another with an opposing viewpoint. The benefit is that the order of each trader is executed immediately without price slippage or delay.
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