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Learn How to Compare the Small Exchange to Futures and Stocks

March 10, 2021 by Daniels Trading| Tips & Strategies

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.

Reduced-size trading provides traders with a multitude of trade management  options, and the ability to diversify holdings. Learn more about how bigger  isn’t always better in our guide >>

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:

STIX Futures Stocks/ETFs
Size $6,900 $270,000 $33,000
Capital Outlay 5-15% 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 

To begin reaping the rewards of trading small, get started with the Small Exchange, now available at Daniels Trading.

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Filed Under: Tips & Strategies

About Daniels Trading

Daniels Trading is an independent futures brokerage firm located in the heart of Chicago’s financial district. Established by renowned commodity trader Andy Daniels in 1995, Daniels Trading is built on a culture of trust committed to the firm’s mission of Independence, Objectivity and Reliability.

Risk Disclosure

THIS MATERIAL IS CONVEYED AS A SOLICITATION FOR ENTERING INTO A DERIVATIVES TRANSACTION.

THIS MATERIAL HAS BEEN PREPARED BY A DANIELS TRADING BROKER WHO PROVIDES RESEARCH MARKET COMMENTARY AND TRADE RECOMMENDATIONS AS PART OF HIS OR HER SOLICITATION FOR ACCOUNTS AND SOLICITATION FOR TRADES; HOWEVER, DANIELS TRADING DOES NOT MAINTAIN A RESEARCH DEPARTMENT AS DEFINED IN CFTC RULE 1.71. DANIELS TRADING, ITS PRINCIPALS, BROKERS AND EMPLOYEES MAY TRADE IN DERIVATIVES FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS. DUE TO VARIOUS FACTORS (SUCH AS RISK TOLERANCE, MARGIN REQUIREMENTS, TRADING OBJECTIVES, SHORT TERM VS. LONG TERM STRATEGIES, TECHNICAL VS. FUNDAMENTAL MARKET ANALYSIS, AND OTHER FACTORS) SUCH TRADING MAY RESULT IN THE INITIATION OR LIQUIDATION OF POSITIONS THAT ARE DIFFERENT FROM OR CONTRARY TO THE OPINIONS AND RECOMMENDATIONS CONTAINED THEREIN.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. THE RISK OF LOSS IN TRADING FUTURES CONTRACTS OR COMMODITY OPTIONS CAN BE SUBSTANTIAL, AND THEREFORE INVESTORS SHOULD UNDERSTAND THE RISKS INVOLVED IN TAKING LEVERAGED POSITIONS AND MUST ASSUME RESPONSIBILITY FOR THE RISKS ASSOCIATED WITH SUCH INVESTMENTS AND FOR THEIR RESULTS.

TRADE RECOMMENDATIONS AND PROFIT/LOSS CALCULATIONS MAY NOT INCLUDE COMMISSIONS AND FEES. PLEASE CONSULT YOUR BROKER FOR DETAILS BASED ON YOUR TRADING ARRANGEMENT AND COMMISSION SETUP.

YOU SHOULD CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES AND FINANCIAL RESOURCES. YOU SHOULD READ THE "RISK DISCLOSURE" WEBPAGE ACCESSED AT WWW.DANIELSTRADING.COM AT THE BOTTOM OF THE HOMEPAGE. DANIELS TRADING IS NOT AFFILIATED WITH NOR DOES IT ENDORSE ANY TRADING SYSTEM, NEWSLETTER OR OTHER SIMILAR SERVICE. DANIELS TRADING DOES NOT GUARANTEE OR VERIFY ANY PERFORMANCE CLAIMS MADE BY SUCH SYSTEMS OR SERVICE.

GLOBAL ASSET ADVISORS, LLC (“GAA”) (DBA: DANIELS TRADING, TOP THIRD AG MARKETING AND FUTURES ONLINE) IS AN INTRODUCING BROKER TO GAIN CAPITAL GROUP, LLC (GCG) A FUTURES COMMISSION MERCHANT AND RETAIL FOREIGN EXCHANGE DEALER. GAA AND GCG ARE WHOLLY OWNED SUBSIDIARIES OF STONEX GROUP INC. (NASDAQ:SNEX) THE ULTIMATE PARENT COMPANY.

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Risk Disclosure

THIS MATERIAL IS CONVEYED AS A SOLICITATION FOR ENTERING INTO A DERIVATIVES TRANSACTION.

THIS MATERIAL HAS BEEN PREPARED BY A DANIELS TRADING BROKER WHO PROVIDES RESEARCH MARKET COMMENTARY AND TRADE RECOMMENDATIONS AS PART OF HIS OR HER SOLICITATION FOR ACCOUNTS AND SOLICITATION FOR TRADES; HOWEVER, DANIELS TRADING DOES NOT MAINTAIN A RESEARCH DEPARTMENT AS DEFINED IN CFTC RULE 1.71. DANIELS TRADING, ITS PRINCIPALS, BROKERS AND EMPLOYEES MAY TRADE IN DERIVATIVES FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS. DUE TO VARIOUS FACTORS (SUCH AS RISK TOLERANCE, MARGIN REQUIREMENTS, TRADING OBJECTIVES, SHORT TERM VS. LONG TERM STRATEGIES, TECHNICAL VS. FUNDAMENTAL MARKET ANALYSIS, AND OTHER FACTORS) SUCH TRADING MAY RESULT IN THE INITIATION OR LIQUIDATION OF POSITIONS THAT ARE DIFFERENT FROM OR CONTRARY TO THE OPINIONS AND RECOMMENDATIONS CONTAINED THEREIN.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. THE RISK OF LOSS IN TRADING FUTURES CONTRACTS OR COMMODITY OPTIONS CAN BE SUBSTANTIAL, AND THEREFORE INVESTORS SHOULD UNDERSTAND THE RISKS INVOLVED IN TAKING LEVERAGED POSITIONS AND MUST ASSUME RESPONSIBILITY FOR THE RISKS ASSOCIATED WITH SUCH INVESTMENTS AND FOR THEIR RESULTS.

TRADE RECOMMENDATIONS AND PROFIT/LOSS CALCULATIONS MAY NOT INCLUDE COMMISSIONS AND FEES. PLEASE CONSULT YOUR BROKER FOR DETAILS BASED ON YOUR TRADING ARRANGEMENT AND COMMISSION SETUP.

YOU SHOULD CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES AND FINANCIAL RESOURCES. YOU SHOULD READ THE "RISK DISCLOSURE" WEBPAGE ACCESSED AT WWW.DANIELSTRADING.COM AT THE BOTTOM OF THE HOMEPAGE. DANIELS TRADING IS NOT AFFILIATED WITH NOR DOES IT ENDORSE ANY TRADING SYSTEM, NEWSLETTER OR OTHER SIMILAR SERVICE. DANIELS TRADING DOES NOT GUARANTEE OR VERIFY ANY PERFORMANCE CLAIMS MADE BY SUCH SYSTEMS OR SERVICE.

GLOBAL ASSET ADVISORS, LLC (“GAA”) (DBA: DANIELS TRADING, TOP THIRD AG MARKETING AND FUTURES ONLINE) IS AN INTRODUCING BROKER TO GAIN CAPITAL GROUP, LLC (GCG) A FUTURES COMMISSION MERCHANT AND RETAIL FOREIGN EXCHANGE DEALER. GAA AND GCG ARE WHOLLY OWNED SUBSIDIARIES OF STONEX GROUP INC. (NASDAQ:SNEX) THE ULTIMATE PARENT COMPANY.

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