Why I Love Trading Futures

Why I Love Trading Futures

Why I love trading futures…Low money to get started, open almost 24/7, no pattern day trader rule. Have you figured out what I am talking about yet? Futures. These are just some of the reasons why I love trading futures, and you will too once you finish this blog post. The amount of capital needed to access the futures market has become too burdensome for many individual traders. For those new to trading, hopes get dashed pretty quick when you realize the amount of capital you need to lay down just to get started. 

There are many reasons why I love trading futures. Due to the liquidity of the futures market, futures traders can benefit from tight spreads. Despite this, trading futures have caused considerable losses to many inexperienced and undisciplined traders.

Luckily, Bullish Bears is here to help. So keep reading, and I’ll show you how not to lose your shirt and show you a great instrument to trade with little money down.There’s no need for penny stocks if you want to trade cheaply.  

Initial Margin

Margin can be thought of as a down payment on the full value of a futures contract. More specifically, it is the initial amount of money a trader must place in an account to open a futures position.

Now, this isn’t an arbitrary amount; it’s established by the exchange and is equal to a percentage of the futures contract value. 

Let’s turn to a real-life example using a crude oil futures contract to help illustrate this. One crude oil futures contract is equivalent to 1,000 barrels of oil. Of course, I’m being generous here but let’s say oil is $75 a barrel. This means the notional value of the contract is $75,000. 

You don’t need to put $75,000 in your account, but you do need some skin in the game. For example, you might need an initial margin of $5,000 per crude oil contract to open a position depending on the exchange. 

Now, if that wasn’t bad enough, you need to keep a balance in your account when trading on margin. 

Enter the maintenance margin. And another reason why I love trading futures.

Maintenance Margin

Luckily, the maintenance margin amount is less than the initial margin. 

In the crude oil example I gave above, let’s assume I bought one contract with a maintenance margin is $4,000. Unfortunately, due to some unforeseen circumstances, the contract price drops by $2. Shockingly, a $2 price drop means the value of the contract has fallen by $2,000. Consequently, if my account balance is less than the maintenance margin, I have to cough up the difference. This is where things get shaky; if I don’t have the money to meet the margin call, my broker or exchange could liquidate my position. Cringe. 

I’d be remiss not to mention that some futures brokers require a $10,000 minimum deposit to start day trading futures. There’s hope if you don’t have $10,000 to start trading with, however. Meet the Micro E-mini futures on the S&P 500.

Micro E-mini S&P Index Futures

Did you know that the CME has created micro contracts to allow everyone to get a piece of the pie? Because of the popularity of the S&P 500 Index futures and the demand for smaller contract sizes, the e-mini and micro e-mini contracts were created.

To make the futures market all-inclusive, CME launched the Micro E-mini suite of futures. From the micro E-mini S&P 500 futures, micro E-mini Nasdaq-100 futures, micro E-mini Dow futures to the micro E-mini Russell 2000 futures, there’s something for everyone.

For those with a small account, the Micro E-mini S&P 500 Index futures provides hope.  

 E-mini futures, especially the E-mini S&P 500 futures (ES), typically have the lowest day trading margins, $50, with some brokers. That means the trader only needs $50 in their account (plus room for price fluctuations) to buy/sell one E-mini S&P 500 contract. Another reason why I love trading futures. 

The Micro E-mini S&P 500 Index futures offer many advantages and appeal to traders of all experience levels. They’re designed to manage exposure to the 500 U.S. large-cap stocks tracked by the S&P 500 Index, widely regarded as the best single gauge of the U.S. stock market.

One micro E-mini S&P 500 futures contract sets you back only $5 x the S&P 500 Index. And each tick equals 0.25 index points. To be more specific, they feature multipliers 1/10 the size of their E-mini counterparts (i.e. $5 multiplier for Micro E-mini S&P 500 futures contract vs. $50 for E-mini S&P 500 (ES) futures).

Key Take-Aways

  • You can typically start trading futures with less capital than you’d need for day trading stocks.
  • The futures market is highly liquid; you don’t need to worry about promptly entering and exiting your positions.
  • Micro E-mini S&P 500 futures (MES) offer smaller-sized versions of our liquid benchmark E-mini contracts.
  • Futures offer flexibility. With markets open nearly 24 hours a day, six days a week, you’re not constrained by “regular” stock market hours.

What Platform Should You Use To Trade Futures?

At Bullish Bears, one of our favorite platforms to use to trade futures is Ninja Trader. Did you know that NinjaTrader supports more than 500,000 traders worldwide? With one of the most powerful and user-friendly integrated trading platforms and charting software systems, NinjaTrader is popular among futures and forex day traders. Apart from the technical indicators, there are over 100 charting tools, NinjaTrader offers a free trade simulator.

Did I mention you can make your own technical indicators and fancy algorithmic trading strategies? For these reasons alone, it’s easy to see why day traders like the platform. Furthermore, the ability to live trade for free wins big points in my book.

5 Reasons To Day Trade Futures Over Stocks

When it comes to day trading specifically, futures markets offer several considerable advantages over trading individual stocks.

Low Account Minimums To Day Trade.

 For those of you eager to day trade, a minimum account value of $25,000 is required under the “Pattern Day Trader” rule. Who has $25,000 lying around in their bank account ready to trade? I know I don’t.  

As mentioned above, since futures trading relies on margin* or borrowed money, you can day trade with a significantly smaller account. Some brokers only require a couple of hundred dollars to get started; another reason why I love trading futures. 

Trade More With Less Using Leverage

As highly leveraged tools, futures provide the ability to control a large amount of notional value with a relatively small amount of capital. 

Enter And Exit Your Positions With Ease

Perhaps the most important thing for day traders is liquidity – a liquid market allows you to easily time your entries and exits without worrying if there’s enough volume to execute your trade. 

Around The Clock Trading

Compared to stocks & ETFs, which trade about 6.5 hours a day, futures are on pretty much 24/6. Round-the-clock trading allows for more trading opportunities and the ability to manage positions any time of day for day traders.

For equity index futures traders, E-mini & Micro E-mini futures allow traders to participate in equity markets before and after the relatively short trading session of the stock market.

Final Thoughts

Without a doubt, the Micro E-mini S&P 500 Index futures offer many opportunities to traders of all experience levels. In fact, the Micro E-mini S&P 500 Index futures are becoming one of the favorite contracts for active futures traders.

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