Bond Stock For many years, the stock and futures markets have been considered separate and distinct entities. Stocks (securities) have been the backbone of capitalism and are still regarded as such today. Stocks are considered the "stuff” of which all "good investments" are fashioned. Not only has stock and bond trading been considered necessary for the survival of industry and business in a capitalist society, but it has also been regarded as the single most viable form of investing for the general public. This view has changed considerably in the light of events that developed as necessary consequences to the speculative bull market of the 1990s and early 2000s. Although it is true that real estate investing can be considered the most profitable vehicle for making money grow, it also requires more start-up capital as well as particular skills that often take longer to learn and implement than do the skills required for success in the securities markets. Stocks can be bought and sold more quickly, and the commission structure for stocks is much more palatable than the usual commission structure for real estate investing. Regardless of your view, the fact remains that investing or trading in stocks has long been the traditional method of choice for the vast majority of individuals. As stock investing matured, numerous products and vehicles were offered to the public and professional traders as means to various ends. Today's investor can choose between stocks, bonds, stock options, LEAPS (long-term stock options), single stock futures (SSFs), mutual funds, bonds, and numerous variations and combinations of these. On the other hand, futures trading has had a murky reputation (at best) since its introduction in the United States in the late 1800s. The typical futures trader was seen as a fast-talking, manipulative, aggressive, mercenary speculator whose primary interest was to trade for the very short term by capitalizing on changes in weather, crop conditions, panics, and other events that affected the price of commodities. Commodities trading was separate and distinct from securities investing. Those involved in the commodities business were known as "commodity traders," not "commodity investors." This distinction, although seemingly minor to the casual observer, speaks volumes. It clearly places the individual who uses the commodities markets in the category of a speculator, whereas the individual who uses the stock market is viewed (often erroneously these days) as an investor. The commodity trader of yesteryear (from the late 1800s through the 1930s) was indeed a different breed of "cat" than the traditional investor in securities. Commodity trading was fast and often furious. Changes in weather and crop conditions as well as unexpected events in the political sphere often caused prices to rise and fall rapidly. Volatility was and still is immense. This is in part because the margin requirement for commodities—the funds required to buy or sell a given commodity—is often less than 3 percent of the entire value of that commodity. With stocks, the average margin requirement for many years has been about 50 percent of the value of the stock or stocks being bought or sold. For example, a $1,000 margin amount for a contract of soybean futures gives the buyer "control" over 5,000 bushels of soybeans at the prevailing price. With soybeans at $5 per bushel, $1,000 gets the buyer $25,000 of product. With stocks, it would take $12,500 to buy $25,000 worth of stock at 50 percent margin. If the price of soybean futures increases from $5 per bushel to $5.25 per bushel, the trader (speculator) will have a paper profit of $1,250, or a 125 percent return on margin. A 25-cent price movement in soybean futures is fairly typical and can occur in a period as brief as one day or less. The other side of the commodity trading coin is that the 25- cent move can just as easily be down, therefore resulting in a loss greater than the amount invested. pick stock ~ currency converter |