Forex Trading Reviews, What is the difference between stock trading and stock index futures trading: In stock trading, stocks and cash are delivered at the time of trading, but in stock index futures trading, delivery does not occur at trading.
In-kind trading of stocks requires the entire transaction amount or stocks, and the in-kind delivery is performed when the transaction is completed.
However, stock index futures are transactions that promise to “buy” or “sell” the stock index at a fixed price on the due date, so the physical delivery is not performed at the time of trading.
Therefore, a margin system is adopted to guarantee settlement performance and ensure the security of transactions.
If you deposit a certain margin, you do not need to prepare the entire transaction amount.
It is similar to margin trading of stocks in that you can deposit a certain amount of money without preparing the entire transaction amount.
Forex Trading Reviews, Difference between stock trading and stock index futures trading
However, in margin trading, stocks and cash are borrowed after depositing collateral, so even if stocks and cash do not come at hand, stocks and cash are delivered in the market in the same way as ordinary physical transactions.
On the other hand, stock index futures are not provided when the transaction is completed. Besides, the stock price index is an abstract numerical value and cannot be delivered concretely.
The difference settlement that receives and pays only the difference between the clearing price (SQ: particular clearing index) and the contract price at the time of transaction is required on the due date.
In margin trading, you are borrowing stocks and cash so that you will incur interest and other costs, but in futures trading, you will not be able to borrow, so you will not incur interest and additional charges.
Besides, futures trading can be started from either “buy” or “sell,” so if you anticipate a decline in the average, you will have a chance to enter from “sell” and make a profit.
Also, in stock trading, you have to select a stock to invest from a large number of stocks, but in stock index futures trading, the number of indexes is not significant compared to stock trading, so it is easy to select a stock.
What kind of trading are futures trading?
Suppose you have a set meal shop. Prices of vegetables, fish, meat, and rice, which are ingredients for set meals, fluctuate depending on the weather and environment.
However, the price of a set meal cannot be easily changed just because components fluctuate.
If the price of vegetables, fish, or meat rises, you can adjust it by changing the menu or ingredients, but it is unthinkable that the set meal does not have the rice (= rice) that is indispensable for the set meal.
Therefore, if nothing is done, the set meal’s profit will decrease as rice prices rise. So how can you stabilize your earnings even if the price of the material fluctuates? All you have to do is get rice at a fixed price for the future.
If you promise to buy rice at the price you have just agreed on a fixed day in the future, you can buy rice at a price lower than the market price, even if the market price is rising when the deadline comes.
I can do it. On the other hand, if the market price is falling, you will buy at a price higher than the market price, so it seems that you have lost at first glance, but because the material cost of the set meal is calculated in advance at that price. The profit is the same as expected initially.
Also, from the perspective of the farmers who sell rice, they promise to sell rice at a fixed price.
If rice is a good harvest and the market price goes down, you can sell it higher than the market price, but if the market price goes up due to a bad harvest, you have to sell it cheaply.
However, since the income is calculated in advance at that price, there is no effect.
In this way, futures trading allow you to sell or buy items with price fluctuations at a fixed price, so it is used as a means (risk hedging) to avoid the effects of price fluctuations.
You can also use price fluctuations to make a profit by buying and selling if you think the price will go up, and then going from selling if you think the price will go down, and then buying and selling in the opposite direction by the due date.
Thank You For Reading my blog regarding Forex Trading Reviews; what is the difference between stock trading and stock index futures trading. I hope. It was Useful For Everyone I Tried to make it Short and Simple.
If you have further queries, don’t hesitate to comment below. I will be happy to help you out.
And don’t forget to share this post with your friends who don’t know about Forex Trading Reviews; what is the difference between stock trading and stock index futures trading yet.
It will help them out. Use the social share buttons to Spread the Knowledge. I hope. It was Helpful to You, Folks, and Would Love to see You all in the Next Post.