Profitability of futures?

[Splint]

O.K. newby question here, when trading futures you would presumably stick with the traditional 2% of your capital at risk at any given time, yes? Assuming that's the case, how can futures (or any leveraged instrument for that matter) be more profitable than say a fully paid ordinary share without taking on more risk? At face value, to my way of thinking, a penny stock which can run from say 10 cents up to $4.00 has a dramatically lower risk v reward than an instrument such as the SPI. Would I be correct in saying that to make the most of the futures market one would trade a hypothetically larger account than their cash assests can really support and that in doing so dramatically increase the risk of ruin due to a substantial drawdown?
I guess I'm trying to work out which instrument gets maximum bang for buck in the aspect of risk vs reward, but not only that, also how a trader can maximise the profitability of their account by means of the different forms of leverage and how the risk element comes into play.

Cheers
Splint

 

[Trembling Hand]

O.K. newby question here, when trading futures you would presumably stick with the traditional 2% of your capital at risk at any given time, yes? Assuming that's the case, how can futures (or any leveraged instrument for that matter) be more profitable than say a fully paid ordinary share without taking on more risk?

That is were you are going very WRONG. Leverage isn't for taken on more risk per trade.

At face value, to my way of thinking, a penny stock which can run from say 10 cents up to $4.00 has a dramatically lower risk v reward than an instrument such as the SPI.

Only some one who has yet to trade both instruments could be thinking such rubbish.

I guess I'm trying to work out which instrument gets maximum bang for buck in the aspect of risk vs reward, but not only that, also how a trader can maximise the profitability of their account by means of the different forms of leverage and how the risk element comes into play.

Why don't you just try and work out whether your Ferrari will be Red or Black??

Find something that you can trade with proven positive expectancy THEN worry about how to maximize MM.

 

[Pager]

O.K. newby question here, when trading futures you would presumably stick with the traditional 2% of your capital at risk at any given time, yes? Assuming that's the case, how can futures (or any leveraged instrument for that matter) be more profitable than say a fully paid ordinary share without taking on more risk? At face value, to my way of thinking, a penny stock which can run from say 10 cents up to $4.00 has a dramatically lower risk v reward than an instrument such as the SPI. Would I be correct in saying that to make the most of the futures market one would trade a hypothetically larger account than their cash assests can really support and that in doing so dramatically increase the risk of ruin due to a substantial drawdown?
I guess I'm trying to work out which instrument gets maximum bang for buck in the aspect of risk vs reward, but not only that, also how a trader can maximise the profitability of their account by means of the different forms of leverage and how the risk element comes into play.

Cheers
Splint

If you have a $10000 account and buy XYZ for 10 cents your buying 100,000 Shares, your stop is 2% so is 9, 8 cents, should your stop be hit then you have lost $200 + Brokerage of say $25 in and $25 out, if XYZ goes up 2% to 10.2 cents you have made $200 less $50 Brokerage.

If you have $10000 then most nearly all futures brokers will let you trade 1 contract in the Spi, the margin required is less than $5000 so it would be possible in theory to trade 2, if you risk 2% of your account you can run an 8 point stop or $200 + Brokerage of about $10 in and $10 out as 1 point = $25. At present the Spi is at about 5700, if it goes up 2% that’s 114 points you have made or $2850 less $20 for Brokerage or a return of close to 30%.

Which instrument offers the best return due to its LEVERAGE, not to mention brokerage rates on 1 futures contract is more than likely to be significantly lower than buying $10000 of shares.

For a stock to go from 10 cents to $4 apart from being the exception rather than the rule in less than 12 months it would be like the Spi going from 5700 to 228,000 or a gain of over $5.5 million were as on the stock you would have made a measly $390,000

Hope that helps