Difference between stocks, bonds, futures, options, and forex?
Green P asked:
THERESA
THERESA
Related posts:
- Trade Stocks, Forex, Futures, Emini, Commodities and Options
- on the stock market what is the difference between forex ,options, equities and futures?
- What is the best way to buy options on EUR/USD or other forex pairs?
- Does anyone know a reputable Forex broker that offers European style options?
- What are the tax rates for options and forex?
3 Responses to Difference between stocks, bonds, futures, options, and forex?
Leave a Reply
Forex Trading Recommendations
JOY
Stocks and bonds are considered equities as you actually own “something” either a small portion of a company through shares of stock or the right to interest payments if you buy a bond. Futures Forex and Options are derivatives as you do not “own” anything when trading these products, your gains and losses are calculated based on the performance of an underlying asset. When you buy Stock you purchase shares of a company, your maximum loss occurs if the company’s stock price goes to 0. Futures and Forex are traded on margin, which means your account must have a minimum amount of money in it to open the trade but not the full value of the investment, the remainder is covered by your broker. Because you put up a small amount of money to control a larger amount of money you are using leverage. Because of leverage you may lose your entire investment and it is possible to lose more than your investment if the trade goes against you. Options are the right but not the obligation to purchase an underlying asset by a certain date, the underlying asset may be shares of stock, futures or forex contracts etc… You pay a premium when you buy an option and you collect a premium when you sell or “write” an option. You can bet the underlying asset will rise or fall in value by buying calls or puts respectively. Hope that helps!
Carrie
If you don’t have $25000 for a day trading account, forget trading stocks.
Bonds are an institutional game.
The others are highly leveraged. Trading stocks on 2:1 margin is considered risky. Trading oil futures or the Dow mini index futures are leveraged 40:1, and will make your account swing widely with small changes in the underlying. Forex is the most leveraged at 100:1 or even 200:1. Wow, how much trouble can we get into now?
You can invest in stocks with the Buy & Hold crowd with very little knowledge or time or resources invested.
But to trade futures or currencies involves more knowledge than you can accumulate in a year. All of the others are a trading arena; not recommended for the novice investor.
Options are a fools game until you become very knowledgeable and sophisticated in the world of finance; ’nuff said about that.
In stocks, you might lose half of your investment in one trade. Only in the others can you lose more than you have invested, and you can do it in one trade, in less than one hour if you’re leveraged.
We can’t even give you a good introduction to such a broad question. Go to your local library and check out a few books. Once you find one book, you’ll find a whole row or three.
Josie
Stocks are shares of companies that you can buy and sell through a stock exchange.
Bonds are what you buy for a fixed return. You are just lending money to a company or the government for a fixed interest return upon maturity.
Futures are contracts that you go into in order to trade an asset for a fixed price in the future. Both parties pay a small amount of cash as margin and is therefore a leveraged trading instrument.
Options are contracts that gives you the right but not the obligation to trade an asset for a fixed price. It is also a leveraged trading instrument.
Forex is trading foreign currency.