Understanding the Difference Between "Stocks" and "Futures"

Understanding the differences between stocks and futures will give you a clear picture of the different risks and opportunities:

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1. Ownership & Asset Class

Stocks are "equity." When you buy shares, you will have the status of co-owner of the entity, and you will have the right to attend the shareholders' meeting.

Voting and growing with the value of the company.

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Futures as "derivatives" (Derivatives) are "futures contracts" where the parties agree to buy or sell the underlying assets.

(e.g., SET50 index, gold, oil) In the future, according to the agreed price from today, you do not really own the underlying asset, it is only contracted to quote the price.

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2. Form of return (Returns)

Stocks The return opportunity comes in two main forms: Dividends from the company's earnings.

And the return on capital Gain as the market value rises.

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Futures The return opportunity comes only from the price difference of the contract, but the highlight is that it can generate returns in both directions.

In both the up-market (Long state open) and the down-market (Short state open).

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3. Holding period (Duration)

Stocks. No expiration date. You can hold shares for as long as the company continues to operate and is not delisted from the market.

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Futures have a limited contract life (such as monthly or quarterly) at the expiration date.

The contract holder must either pay the price (Settlement) or deliver the assets as specified.

It is not possible to keep holding cross-year without doing anything (to continue holding requires a procedure called Rollover).

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4. Investment and Leverage

Shares are generally cash balances, which is to buy a stock worth 100,000 baht. You have to pay the full amount of 100,000 baht.

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Futures use the Margin mechanism, which takes only part of the actual contract value.

(i.e. about 5-15%, depending on the asset class), resulting in a "Leverage rate."

For example, the insurance money is only 10,000 baht, but the contract value of 100,000 baht can be controlled.

This mechanism makes the likelihood of a very high percentage of returns compared to the principal.

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5. Risk level (Risk)

Stocks The main risk is tied to the fundamentals of the company, its economic condition, and its administration. If the company goes bankrupt, the maximum damage is the total investment that buys the stock.

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Futures have a much higher risk because of the Leverage effect if the price direction goes wrong from the forecast.

The insurance money decreases rapidly and, if it falls below a certain threshold, is called to place more insurance money (Margin Call).

Or may be forced to close the Force Sell status immediately if not replenished as scheduled.

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* * It's just a stock sample. It doesn't recommend trading. Investing is risky. Please study it well before trading. * *

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📚 Source of information (References)

Academic data and the structure of these markets are based on direct regulatory financial institutions in Thailand:

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Stock Exchange of Thailand (SET) * Category: Basic knowledge Equity investments (stocks)

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www.set.or.th website (section of SET e-Learning and Newbie Investor Awareness Articles)

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Futures Market Company (Thailand) Public Limited (TFEX)

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Category Goods and services / Introduction to derivatives

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www.tfex.co.th website (section of Investor Knowledge about Futures and Margin)

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Securities and Exchange Commission (SEC).

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Category Investment Guide and Risk Warning on Derivative Leverage Use

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