Learn How to Compare the Small Exchange to Futures and Stocks

Learn How to Compare the Small Exchange to Futures and Stocks

In the world’s capital markets, opportunity awaits around every corner. Of course, so does risk. Being a successful trader is not only about desire, discipline, and dedication―it is also about making the most out of your money.

Without question, futures and stocks provide participants many ways to profit. But which markets are the best for you? If you aren’t 100 percent sure, it may be time to take a closer look at the Small Exchange.

Capital Efficiency

Capital efficiency is the ratio of the money spent to grow revenues versus actual returns. Businesses view capital efficiency as a vital component of their financial health—and as a market participant, so should you.

When it comes to active trading, capital efficiency is a direct function of two things: applied leverage and margin requirements. Accordingly, low margin requirements facilitate the application of higher degrees of leverage. Futures products excel in this area, with margins being as low as 5 percent of a contract’s notional value. Conversely, stocks or ETFs are traded on much higher margins, upwards of 25 percent, 50 percent, or 100 percent of the position’s value. Of course, futures notional values are typically measured in the $100,000s, making the funds needed to satisfy margins extensive.

Comparatively, the Small Exchange enables traders looking to participate with a minimal capital outlay. Although margin requirements are in the 5-15 percent range, vastly reduced contract sizes promote affordability. To illustrate, this chart shows how tech sector futures and equities indices stack up against the Small Technology 60 (STIX) contract:

STIXFuturesStocks/ETFs
Size$6,900$270,000$33,000
Capital Outlay5-15%5-15%50-100%

Note: Values are subject to change as market conditions dictate.

As you can see, trading tech-oriented futures, stocks, and ETFs can get expensive fast. Meanwhile, you can open a position in the Small Technology 60 for less than $500. The reduced contract size helps you stay nimble in the market, avoiding the opportunity cost of missing out on other potentially lucrative trades.

Strategic Freedom

A rock-solid strategy is a vital component of any comprehensive trading plan. At its core, a trading strategy identifies opportunities in the marketplace while defining the parameters of trade execution. The result is consistent behavior in the markets and quantifiable results.

Unfortunately, large capital allocations and the rules of futures and stock trading limit the strategic freedom of many retail participants. However, the Small Exchange rewards creativity via the following benefits:

Diversity

In total, you can choose among six Smalls, each offering comprehensive exposure to the world’s most popular asset classes. You can trade front-month and deferred-month contracts facing U.S. large caps, U.S. tech, the U.S. dollar, precious metals, the U.S. 10-year T-Note, and crude oil. If you’re a retail forex, commodity, bond, or equities index trader, then the Smalls have a contract ideal for you.

Frequency

With the Smalls, you’re free to trade the volumes that suit you best. From intraday scalping to swing and intermediate-term trading, you have a multitude of strategies at your fingertips. This isn’t the case with stocks and futures. The overnight margins of futures make it costly to hold positions through market closures. If you execute more than three intraday stock trades in a five-day period, you are classified as a pattern day trader―also an expensive proposition. For the Smalls, these barriers simply don’t exist; you can trade what you want, when you want, how you want.

Imagine scalping the U.S. dollar while swing trading U.S. large caps, holding the 10-year note while day trading crude oil, hedging an intermediate-term tech bet with a short-term precious metals play … with the Smalls, the possibilities are endless.

Want to Learn More About the Small Exchange?

No matter whether you’re new to futures and stocks or a market veteran, now is a great time to consider the benefits of the Smalls:

  • Minimal capital outlay
  • Strategic freedom
  • Maximum flexibility
  • Diversification

Credit: Daniels Trading

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