• Futures Trading

    Day traders love futures trading. There are no restrictions on broker account size (as in stocks) and low commissions are usually available. Futures markets trade on a large variety of underlying securities. Futures trading provides wide price movement and liquidity. Commodity futures trading is available 24 hours a day, 7 days a week.

    Futures are traded at the Chicago Mercantile Exchange (CME) in the US and the DTB in Europe and the Chicago Board of Trade (CBOT).

    Futures Markets

    There is no shortage of futures markets:
    Index futures: YM (the mini Dow), ES (the mini S&P 500), DAX (the primary index future of the DTB).
    Currency futures: EUR (Euro to US Dollar), GBP (British Pound to US Dollar), CHF (the Swiss Franc to US Dollar), AUD (the Australian Dollar to US Dollar).
    Commodity futures: ZG (the 100 troy oz Gold future), ZI (the 5000 oz Silver future).
    There are also stock futures.

    Futures Trading Contracts & Definitions

    The futures markets trade in contracts, according to the underlying security (currency, commodity, etc.) that is represented. Those contracts will be bought or sold on a predetermined date (the expiration of the contract) for a specific price. If you are day trading futures then you are just hoping to profit on the difference between the buying and selling prices, but everyone needs to pay attention to the expiration date.

    Most futures markets use contracts that are valid for 3 months and expire in March, June, September and December. Futures contracts buyers and sellers both have the obligation to meet the terms of the agreement at expiration.

    E-minis are Favorites

    It seems that the futures market of choice is the E-mini S&P 500 (ES). In margin calculations, a trader can work with $75000 worth of stock for only about $3500 of his own account. Also popular are the Dow futures (YM) and the E-mini Russell futures (TF). Ten year T-Notes, the Japanese yen, and crude oil all seem to be good futures markets as well. The E-minis are only traded electronically, at lightning speed. Trade confirmation is instant.

    Commodity futures are instruments to trade the underlying security which is actually a commerce producing product or service (gold, oil, cattle, lumber). But commodities are traded in the same way as other futures.

    There are many types of Futures Trading

    Symbols and Tick Size

    Symbols for futures trading consist of the underlying security, the expiration date and the exchange. Example: The Euro to US Dollar currency future that expires Dec of 2011 will have the symbol EUR-201112-GLOBEX.

    The smallest increment futures can move is called a “tick,” which is the multiplier. The size of the tick is predetermined by the contract size of the underlying security and is increased according to the number of contracts traded.
    Futures Trade Long or Short and in Both Directions
    Futures can be traded long or short. If a trader thinks the market will move higher, he will make a long trade (buy a contract(s)) then he will sell that contract(s) and keep the difference in premium. In reverse, if a trader thinks the market will decline, he will place a short trade (sell a contract(s)) then he will close the trade by buying a contract(s) and keeping the difference in premium.
    One of the beauties of futures trading is being able to trade in both directions, thereby allowing for more and greater profits.

    Volatility in Trading Futures

    Often when the futures open in the morning the opening price will be much different than the previous day’s closing. That means that if you hold a position overnight, you could be in for a big surprise the next morning. Futures charts move quickly; new traders are amazed at the speed and how quickly things can change. Sometimes a major world event can create huge price movement while futures trading. That’s another reason day traders love futures, they don’t hold anything overnight.

    As with most forms of trading, you have to be focused and disciplined. It’s easy to let fear and greed cause you to modify a trade from your original plan. Jumping into futures trading without a plan is just plain crazy. You’ll be on the sidelines before you even know what happened.

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