FUTURES VS. STOCKS
Plain English
Stocks are ownership in a company. Futures are contracts to buy/sell an asset later. The key differences: futures have expiration dates (stocks don't), futures use leverage (you control much more than you deposit), and futures can go short just as easily as long.
Going deeper
Key differences between futures and stocks: (1) Ownership: Stocks represent ownership; futures are contracts. (2) Expiration: Stocks can be held indefinitely; futures expire (monthly or quarterly). (3) Leverage: Futures require 5-15% margin, controlling a much larger notional value; stocks use 50% margin. (4) Short selling: Going short futures is as easy as going long; stock shorting requires borrowing. (5) Markets: Futures trade nearly 23 hours/day; stocks trade only during market hours. (6) Marking to Market: Futures P&L is settled daily; stocks are settled on realized gain/loss. (7) Tax Treatment: Futures qualify for 60/40 tax treatment (60% long-term, 40% short-term regardless of holding period).
Examples
Leverage Comparison
Buying $50,000 of Apple stock requires $25,000 margin (50%). An E-mini S&P 500 futures contract worth $250,000 requires only $12,500 margin (5%). Same capital, but futures give you 20:1 leverage versus 2:1 for stocks.
No Shorting Restrictions
To short a stock, you need shares available to borrow and must pay borrow fees. To short E-mini futures, you simply sell the contract — no borrowing, no fees, instant execution. Going short futures is mechanically identical to going long.