Day Trading Futures: How to Trade Them Like a Pro
Day trading futures is a very popular and lucrative trading strategy. Have you ever been locked out of your trading account due to a day trading violation? Or better yet, have you missed an opportunity due to short selling restrictions? Both situations you will want to avoid like the plague. There can be restrictions day trading stocks and options that are very frustrating, but day trading futures helps to overcome these hurdles. There’s also less charts to look at and you can trade the major indexes as well as the most popular commodities. Watch our video on how to day trade futures.
Imagine being in a position where you’re trying to sell a stock that is tanking. But unfortunately for you, you’ve reached trade number five of the week and surprise, your account is locked. Missed opportunities can be costly, so today, we will look at why day trading futures might be one option to consider.
Can You Make Money Day Trading Futures?
Day trading futures is a great way to make money. However, Futures is a different beast than stocks and options. In fact, it’s open pretty much 24/7. So you have the ability to make money at night or before 9:30am. So if you work a 9-5 job then day trading Futures is for you.
First Things First – What Is the Futures Market?
Sometimes in life, an opportunity is sitting right in front of us, but we’re too busy looking elsewhere to notice.
Case in point, those who automatically think of the stock market when they hear the term “day trader.” But lingering in the background like the unpopular kid who will someday become president is the futures markets.
To summarize, futures are an agreement between a buyer and a seller to buy/sell a specific amount of an underlying asset at a future date and price.
Regardless of the current market price at expiration, the buyer must buy, or the seller must sell at the set price. You’re probably wondering what exactly this underlying asset is, let me tell you.
Futures contracts can be on physical commodities like oil, corn or soybeans. Alternately, they can be on financial instruments like the S&P. Day traders can make money. But day trading Futures gives you more opportunity to make money.
Day Trading the Futures Market
In a nutshell, day trading futures is the strategy of buying and selling a futures contract(s) within the same day. You do not hold any long or short positions overnight.
Like any instrument that is day traded, the time can vary anywhere from a few minutes or even hours. Day trades vary in duration; they can last for a couple of minutes or at times, for most of a trading session.
Futures day traders make money by capitalizing on the price fluctuations between the buy/sell price of a contract and the close the position.
The Advantages of Day Trading Futures
- No PDT Rule
- In many cases no minimum account size
- No shorting restrictions
- Trading outside stock market hours
- A good nights sleep or you can trade all night – it’s up to you.
Having said that, breakouts occur from many different types of patterns, not just one. We see breakouts of ranges, patterns – head and shoulders, flags, the list goes on.
Breakouts can provide you with an excellent opportunity to make some profit if you catch them on time.
No Pattern Day Trader Rule
Are you thinking of trading four or more times in one week? What’s the state of your finances? If you don’t have at least $25,000, you can’t day trade stocks.
Thank the PDT rule for that. Many new day traders are sorely disappointed when they realize they have to have a minimum of $25,000 in their account to make this happen.
But don’t despair just yet; the PDT rule does not apply to day trading futures. As long as you maintain your minimum margin requirements for your positions, you can trade as often as your heart desires.
No Minimum Account Size
If you can barely scrape together the funds for a vacation, saving 25,000 is a pipe dream. Unless of course, you’re banking on inheriting a chunk of change from your wealthy uncle; wouldn’t you be so lucky!
I have good news, though. You can start trading futures with much less capital than stocks. Case in point: $3500 to $5000 will get you started day trading the Emini S&P (one of the best futures contracts for day trading btw).
Another thing to consider is the trading platform you are going to use. Many of have minimum capital requirements to trade futures and options.
Typically the minimum account balance hovers around the $2,000 mark, still not a huge amount compared to $25,000.
As an equity trader, you can only trade up to four times your maintenance margin on an intra-day basis. So if you have $20,000 maintenance excess available, you can only trade up to a value of $80,000.
Exceed this amount and margin calls may further limit buying power and trading frequency. With futures, however, that same margin may afford you the ability to trade a much larger notional value.
I have to put a plug in here about margin and risk. Under no circumstance should new traders ever trade on margin. Please take the time to learn in a simulator; otherwise, you’ll be just throwing your money out the window.
No Short Sale Restrictions
A common struggle for equity day traders who like to short is the availability of shares. And there are many reasons why these shares may not be available from your broker; think short sale restriction.
Alternatively, a futures trader does not have the same short sale restrictions. You can breathe a sigh of relief and take a short position just as easily as a long position.
You Get To Sleep Well At Night
Please show me one person who does not want to sleep well at night! Personally, there’s been times in my life where I would have donated an organ to get a good night’s sleep.
Ok, well that’s a bit of an exaggeration, but you get my point. With futures, all positions must be closed by the end of the day. And no positions means no risk, which means a night of good sleep. Sign. Me. Up.
Best Markets for Day Trading Futures
Without a doubt, the market of choice for many day traders is the E-mini S&P 500. Because the E-mini S&P futures are traded electronically, trade executions very fast and liquid. What’s more, futures traders can control around $75,000 worth of stock for about $3,500 in the margin. If you have a penchant for the stock market, the Dow futures, E-mini Nasdaq futures, and E-mini Russell futures are also popular among futures day traders.
Other good candidates for day trading include soybean, crude oil, the Japanese yen, and Euro FX. All of these have the daily volume and volatility in their futures prices.
Each futures market has different characteristics, so one needs to study the markets before day trading to uncover and optimize techniques and develop a plan.
All you need is an easy day trading system indicator. And you’ll have an edge over other traders.
If you’re thinking of day trading futures, here are a few things you should keep in mind.
- Starting it is recommended that you trade the S&P Emini (ES).
- The recommended starting capital for ES is $3500 to $5000
- Market hours are from 9:30 AM to 4 PM EST for ES. However, you can place trades in the hour leading up to the open.
- The ideal time for trading ES futures is between 8:30 and 10:30 AM, and 3 to 4 PM.
- As a new trader, focus on becoming an expert in one futures market. It’s pointless to try to learn everything, so just stick with one and perfect it. Keep it simple.
- Check the CBOE for a full detailed list of futures times.
Disadvantages of Day Trading Futures
One must be strictly disciplined if they want to be a successful day trader of any security. Sadly, the temptation to overtrade is and always will be present in the markets – futures or otherwise. At the root of this are emotions and an inability to control them.
Furthermore, commissions will add up quickly and burn a hole in your account. Look at a trader with a $20,000 account, for example.
She trades one e-mini S&P contract, and by the end of the year she many owe $5,000 – $10,000 in commissions. To break even she would need to make a 25-50% return, ouch.
Final Word On Day Trading Futures
Most people who are day trading futures struggle to make money. Personally, I think it’s a lack of both preparation and discipline that is their downfall.
Mainly because day trading can be an unforgiving game, regardless of the market traded. However, for those willing to do homework, develop a plan, and stick to it with discipline, it can be a profitable venture.
And as a futures trader, you can go long or short multiple times a day, and you do not have to worry about day trading restrictions.
So why miss out on another opportunity because of restrictions? Make a move into futures today; we will show you how, with our futures trading course.