Futures trading and stock options trading offer a major advantage known as leverage. Say you have $5,000 dollars to invest. You could buy shares of a company, or you could buy stock options on that very same company. Each option gives you control of 100 shares. So with that $5,000, you can buy 10 options of a stock thats selling at $50, which amounts to 1,000 shares.
Stock futures contracts control the same amount of shares as options: 100 shares per single stock future. However, when trading futures, you usually only have to make a deposit of 20 percent. The deposit is to open the position and this is called initial margin. The power of leverage is how this is all possible. With a small amount of money, you can control a larger stake. This larger stake allows your potential profit to be much higher then if you only bought the stock outright.
Educate yourself about stock options trading and futures trading
For novice traders, it's a good idea to get a solid foundation in stock options trading and futures trading before putting your money on the line.
I recommend: The Options Industry Council (OIC) offers a variety of learning tools, including online classes, podcasts and live seminars to help beginners learn the basics of stock options trading.
Investools also offers a host of courses and online tools on stocks and options trading.
Practice trading futures and options
Paper trading and practice accounts are a great way to get your feet wet in either the options or single stock futures market. Online futures sites even have practice trading accounts available to try before you place any real money on the line.
I recommend: First American Futures has a great 30-day online test trading account funded with $50,000 virtual dollars. At
OptionsXpress and
OptionsHouse, you can use virtual trading tools to practice trading futures and stock options.
Open a stock options trading account
Stock options trading is offered by most brokers. If you have a broker, you can usually upgrade your account by signing a few forms and placing your account on margin. If you prefer to find a new broker for trading stock options so you don't mix your current stock portfolio with your options portfolio, there are many online brokers to fit your needs.
I recommend: E*TRADE has low prices and an advanced options screening tool.
TradeKing is another excellent options broker.
Zecco Trading is known for their dedicated customer service. They also offer great prices for more complex trading strategies.
Open an online futures account
Many brokers offer single stock futures as well as stocks and other investment instruments.
I recommend: PFGBEST.com is an online futures broker that can trade single stock futures.
Interactive Brokers can trade stock, options, bonds and futures all in one place. They are a little more expensive than some of the other futures brokers, but their trading platform is great, and with the ability to trade virtually all investment instruments, it makes them a one-stop shop.
OptionsXpress will also allow you to trade futures, stocks, stock options and single stock futures.
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