ATS: India’s Lowest-Cost Online Stock Trading Platform

4. How is Futures Trading Different from Stock Trading?

While both stock and futures trading involve participating in financial markets to generate returns, they are fundamentally different in structure, objective, and risk profile. Understanding the differences is crucial for selecting the right strategy depending on your experience, capital, and purpose—whether it's long-term investing or short-term trading.

Fundamental Differences

Feature	Stock Trading	Futures Trading
What’s Traded	Ownership shares of a company	Contracts to buy/sell an asset at a future date and fixed price
Ownership	Yes. You become a part-owner of the company	No ownership—purely a financial agreement
Holding Period	Unlimited—you can hold stocks for years	Limited—contracts have fixed expiry dates (monthly, weekly, etc.)
Leverage	Requires full payment (unless using margin trading with broker)	High leverage—trade large positions with a small margin deposit
Short Selling	Limited (needs borrowing of shares)	Easy—you can sell first and buy later freely
Dividends	Eligible to receive dividends/bonuses	Not entitled to dividends
Settlement	Trade settles in 2 working days (T+2)	Daily MTM (Mark-to-Market) + expiry settlement
Use Case	Investing, passive wealth creation	Hedging, speculation, short-term trading
Risk Profile	Relatively low, limited to invested capital	Higher risk due to leverage and volatility

Stock Trading: Explained

When you buy a stock:

You own a part of the company and are entitled to dividends, rights, and voting (if applicable).
You can hold it forever, sell at your convenience, and benefit from long-term price appreciation.
You are investing in the future earnings and growth of the company.
Suited for long-term investors and wealth builders.
Capital requirement is higher, as you need to pay the full stock price (unless using delivery margin or intraday leverage).

Example
Buying 100 shares of TCS at ₹3,500 = ₹3,50,000
No expiry, can hold for 10 years
If TCS pays ₹100 dividend per share → ₹10,000 dividend earned

Futures Trading: Explained

When you trade futures:

You’re entering a contract to buy/sell an asset in the future, based on today’s agreed price.
No actual ownership—just speculation on price movement.
Futures offer leverage (only 10–15% margin required), but P&L is calculated on full value.
Trades are marked-to-market daily, and losses must be settled immediately.
Best suited for traders, speculators, and hedgers—not long-term investors.
Perfect for short-term strategies and directional bets.

Real-World Example: Reliance Stock vs Reliance Futures

Criteria	Stock Trade	Futures Trade
Price	₹2,500	₹2,500
Lot Size	1 share	250 shares (standard futures lot size)
Investment	₹2,500 × 250 = ₹6,25,000	Only 10–15% margin = ₹65,000–₹95,000
Expiry	No expiry	Monthly expiry
Dividends	Eligible	Not eligible
Risk	Limited to investment	Unlimited if not managed (due to leverage)

Risks in Futures vs Stocks

Risk Type	Stocks	Futures
Price Volatility	Moderate	High due to leverage
Loss Potential	Limited to capital invested	Potentially unlimited
Time Pressure	None—flexible	Yes—contracts expire
Margin Calls	Rare	Common if market moves against your position

Use Case Differences

Use Case	Stocks	Futures
Long-Term Investment	Ideal	Not suitable
Short-Term Trading	Possible	Preferred
Intraday Scalping	Yes (with leverage)	Yes (very common)
Hedging Portfolio	Limited	Highly effective
Shorting Market	Difficult (borrowing required)	Easy (direct short sell)

Key Takeaways

Stocks: Ownership, dividends, long-term wealth building, lower risk.
Futures: Leverage, short-term trading opportunities, higher risk.
Stocks = Investment. Futures = Trading instrument.
Choose stocks for long-term investing, futures for trading movements and managing risk dynamically.