Trading Instruments

[Leth]

Here is some information on various trading instruments you may find useful; including pros and cons, as well as a few personal notes at the end of each subject heading. Remember, retail trading is stacked more in the favor of brokers than traders, so make sure you do your homework before diving in. If you don't, you'll end up drowning in the deep end and having your carcus eaten by sharks till theres nothing left.

This will be an ongoing list, meaning that I may add, delete, or change a few things here and there as time goes on.

Stocks

Leverage:
-1:1 Long trades
-2:1 Long trades with margin
-2:1 Short trades with margin (sorry, wallstreet no longer allows shorting stocks outright; what a shame)

Pros:
-Liquidity
-IPOs
-Dividends
-Low transaction fees through discount brokers
-Insider trading (if your on the inside)
-Easily tradable depending on individual methodology
-Choice variety, over 8,000 listed securities
-Margin
-Can trade the news and earnings reports
-Offers technical and fundamental analysis
-Leverage (when it works for you)
-ETFs

Cons:
-Insider trading (if your on the outside)
-Low Leverage
-Cost; need to have enough money to profit over transactions
-Margin can work against you
-Possible Analysis Paralysis (depends on your trading method)
-Mostly random
-Trading the news and earnings reports only work short term
-Margin call
-Leverage (when it works against you)
-Pump and Dump

Notes:
-If you have a small account, trading long term may be your best bet
-Short term trading works better if you have a decent size account
-Use good money management
-Don't short stocks when day trading due to the 1 uptick rule; unless you have inside information
-Nasdaq and Growth Stocks have the best trends
-In reality, Fed rate hikes or cuts only effect the markets short term
-Never trade stocks with share prices less than $10.00

Options

Leverage:
-10:1 Calls (long)
-10:1 Puts (shorting)

Pros:
-Liquidity
-Leverage (when it works for you)
-Low Transaction fees through discount brokers
-Choice variety
-No Margin
-Insider trading (if your on the inside)
-Volatility (when it works for you)
-Can trade the news
-Offers technical and fundamental analysis

Cons:
-Leverage (when it works against you)
-Having to beat the clock
-Slippage
-Insider trading (if your on the outside)
-Can be complicated if doing more than buying calls and puts
-Possible Analysis Paralysis (depends on your trading method)
-Volatility (when it works against you)
-Drawdowns (when trading long term)
-Mostly random
-Trading the news and earnings reports only works short term
-High spreads

Notes:
-Easier to profit when you keep it simple
-Use stops
-Take less risk than you would trading stocks outright
-Use good money management
-Out of the money options are suckers bets; buy at or in the money only
-Don't buy contracts at an expiration of less than 6 months out
-Don't buy puts when day trading due to the 1 uptick rule; unless you have inside information
-Nasdaq and Growth stocks have the best trends
-Never trade options on a stock where the underlying share price is less than $10.00

Futures

Leverage:
-5:1 to 30:1 Long trades with margin
-5:1 to 30:1 Short trades with margin

Pros:
-High Liquidity
-Non-collinear markets
-Leverage (when it works for you)
-Insider trading does not effect short term plays
-Long or short
-Continuous contracts
-Volatility (when it works for you)
-Agricultural futures tend to be more seasonal
-Based on Supply and Demand
-Offers technical and fundamental analysis
-Emini contracts

Cons:
-Leverage (when it works against you)
-Slippage
-Limit Locks
-Higher transaction costs
-Volatility (when it works against you)
-Drawdowns (when trading long term)
-Margin call
-High spreads
-Need a fair amount of capital to buy and sell standard contracts

Notes:
-Keep it simple
-Use stops
-Use good money management

Forex

Leverage:

-1:1 Long trades
-5:1 Long and short trades with margin
-10:1 Long and short trades with margin
-40:1 Long and short trades with margin
-50:1 Long and short trades with margin
-100:1 Long and short trades with margin
-200:1 Long and short trades with margin
-300:1 Long and short trades with margin
-400:1 Long and short trades with margin

Pros:
-More liquidity than all other markets put together
-No exchange fees
-Virtually no slippage
-Virtually instantaneous transactions
-Highest available leverage (when it works for you)
-No time constraints
-Low spreads
-Offers technical and fundamental analysis
-Best long term trends out of all traded securities
-Mini and Micro Lots
-Need minimal capital to trade
-Open 24 hours a day, 5 days a week

Cons:
-Leverage (when it works against you)
-Account automatically closes when you exceed margin limits.
-Highly volatile daily fluctuations (could be pro or con depending on your method)
-The higher the leverage, the bigger the spread costs

Notes:
-Brokers say they offer as low as 1 or 2 pip spreads; this is actually a rarity, the average is 3 to 5
-50,100, 200, 300, or 400:1 leverage is a suckers bet; keep it at 10:1 or less (professionals never use more than 20:1)
-For the best trends and liquidity, stick with the majors
-Forex has more scams than all other instruments
-Look at your broker through a magnifying glass before opening an account. Beware of opening accounts via non-bank wire transfers
-Use good money management