Futures Day Trading – Tutorial And Brokers

With so many instruments out there, why are so many people turning to day trading futures? This page will answer that question, breaking down precisely how futures work and then outlining their benefits and drawbacks. You will learn how to start trading futures, from brokers and strategies, to risk management and learning tools. Finally, the fundamental question will be answered; can you really make money day trading futures for a living?

Futures Brokers

One of the largest discount brokers in the US, with a fixed trading commission and access to a large array of trading products and securities
Demo Account
Yes
Regulator
FINRA
MT4 Integration
No
Min. Deposit
None
Min. Trade
None
Bonus
60 days free trades when depositing $3k

What Are Futures?

A Brief History

Before we take a look at how to start day trading options and indices futures, it helps to understand their humble origins.

Futures contracts are some of the oldest derivatives contracts. They were born from a need for farmers to hedge against changes in the prices of crops, between planting and harvesting. That’s why a lot of the futures still traded today, are livestock such as cattle, plus grains like wheat and corn.

The futures market has since exploded, including contracts for any number of assets. You can now trade in precious metals such as gold, industrial metals like aluminium, stocks like the S&P 500, as well as treasury bonds.

Financial Derivatives

At first, the concept of futures may sound a little confusing, but they’re actually surprisingly straightforward.

A derivative is when a financial instrument derives its value from the price fluctuations of another instrument. So, for example, the value of a derivative linked to the S&P 500 is simply a function of price movements within the S&P 500.

The S&P 500 is effectively a cash index, compiled into a contract that trades much like stocks. The futures contract has a price that will go up and down like stocks. In fact, your futures chart will probably look similar to your stock chart, with opportunities to buy low and sell high.

Leverage

An essential component, if you’re trading futures, is leverage. This means you don’t have to pay for the entirety of the contract when you initiate a trade. Instead, you pay a minimal up-front payment to enter a position. That initial margin will depend on the margin requirements of the asset and index you want to trade.

Variety

As a trader, it’s important to know the nuances between different futures. Day trading futures vs stocks is different, for example. You are not buying shares, you are trading a standardised contract. Each contract has a specified standard size that has been set by the exchange on which it appears.

Let’s say the contract size for aluminium futures is 50 troy ounces. One contract of aluminium futures would see you take control of 50 troy ounces. If the price of aluminium shifted by $2, you’d see a profit of $100 ($2 x 50 ounces).

Terminology

Below are two terms you may frequently come across and will need to understand:

First Notice Day

A futures trading first notice day (FND) comes the day after an investor who has purchased a futures contract may be obliged to take physical delivery of the contract’s underlying commodity. The FND will vary depending on the contract and exchange rules.

Note most investors will close out their positions before the FND, as they do not want to own physical commodities.

Last Trading Day

The last trading day of oil futures, for example, is the final day that a futures contract may trade or be closed out prior to the delivery of the underlying asset or cash settlement. Usually, most futures result in a cash settlement, instead of a delivery of the physical commodity. This is because the majority of the market is hedging or speculating.

You will need to take into account unpredictable price fluctuations in the last trading day of crude oil futures, or natural gas futures, for example.

But before you start trading, you need to get to grips with your chosen asset, as the quantity of different futures varies.

Best Markets for Day Trading Futures

We’ve touched upon some of the assets you can trade, but what other options are there and which market offers the greatest potential for the switched on intraday trader?

Many would argue the E-mini S&P 500 is the place to go. You can trade around $75,000 worth of stock with just a $3,500 margin, making it accessible to all traders. You’ll find E-mini S&P futures are all electronically traded, ensuring rapid execution speeds and promising possibilities for automated trading software.

Alternatively, consider E-mini Nasdaq futures, E-mini Russel futures, and Dow futures. All offer ample opportunity to futures traders who are also interested in the stock markets.

On top of that, there are several other markets that offer the substantial volume and volatility needed to turn intraday profits. Soybeans, coffee, Natural gas, Japanese yen, Euro FX, crude oil, and the 10 Year T-Notes all deserve a look in.

However, before you put all your capital on the line, remember each market has its own attributes and careful analysis is needed to uncover the right market for your individual trading style and strategies.

Why Trade Futures?

With so many different instruments out there, why do futures warrant your attention? For five very good reasons:

1. Low Cost

Whilst the stock markets demand significant start-up capital, futures do not. You can open an account and start trading with less than $5,000.

The best part though, you don’t have to even maintain that amount. You simply need enough to cover the margin. The margin is usually around 3-9% of the full contract value, so you actually only need a balance of a few hundred dollars.

2. Futures Shift With The Underlying Asset

With options, you analyse the underlying asset but trade the option. However, your profit and loss depend on how the option price shifts. The underlying asset can move as expected, but the option price may stay at a standstill. Futures, however, move with the underlying asset.

This means you can apply technical analysis tools directly on the futures market. You don’t need to be concerned about complications with derivative pricing.

3. FINRA’s Pattern Day Trading Rule Does NOT Apply

If you meet the minimum requirements (using a margin account, trade the same security more than four times within five days, etc), you must keep at least $25,000 in your trading account.

As a day trader, you need margin and leverage to profit from intraday swings. Thankfully, if you’re day trading with futures, this rule does not apply. This grants access to the markets for thousands who otherwise couldn’t meet the stringent requirements set by FINRA.

4. Zero Restrictions On Short-Selling

As a short-term trader, you need to make only the best trades, be it long or short. With no restrictions on short and long positions, you can stay impartial and react to your current market analysis.

Whereas the stock market does not allow this. You are limited by the sortable stocks offered by your broker. You have to borrow the stock before you can sell to make a profit. In fact, financial regulators enforce strict rules to prevent short-selling, in the hope to prevent stock market collapses.

5. Reliable Volume Data

Because there is no central clearing, you can benefit from reliable volume data. Getting reliable volume data from a forex dealer is impossible, as forex trading is decentralised, so nobody has all the information. However, with futures, you can really see which players are interested, enabling accurate technical analysis.

Drawbacks

Despite there being numerous reasons for day trading futures, there remain two serious disadvantages.

1. Fees

It can be extremely easy to overtrade in the futures markets. Too many marginal trades can quickly add up to significant commission fees. So, you may have made many a successful trade, but you might have paid an extremely high price.

If you have $25,000 in your account and trade one S&P E-Mini contract, you could pay anywhere between $7,500-$12,500 in commissions each year. That would mean you’d need at least a 25% return to break even. Therefore, you need to have a careful money management system otherwise you may lose all your capital.

2. Low Capital

Trading psychology plays a huge part in making a successful trader. But because you can start trading futures with such minimal capital, you have even greater psychological pressures to overcome. This is because you simply cannot afford to lose much. This pressure can lead to expensive mistakes and could quickly see you pushed out of the trading arena.

How To Start Day Trading Futures

Day trading futures for beginners has never been easier. Technology has ensured brokers, accounts, trading tools, and resources are easier to get hold of than ever. So, how do you go about getting into trading futures?

Minimum Capital Requirements

It’s one of the most accessible markets because you need less capital than you would for stocks, but more than you do for forex. Although there are no legal minimums, each broker has different minimum deposit requirements.

E-mini futures have particularly low trading margins. With the E-mini S&P 500 futures, you can find brokers offering just $500. So, you’d need that $500 and enough to cover any trading margins and price movements in your positions.

Margin positions vary from broker to broker, however, TD Ameritrade and NinjaTrader offer attractive margin deals.

Choosing A Broker

This is one of the most important investments you will make. Most intraday traders will want a discount broker, offering you greater autonomy and lower fees. What should you look for from a futures broker then?

  • Fees – Opt for a broker with a competitive and transparent fee structure. With frequent trading, commission fees soon pile up, so make sure they won’t eat into all of your profit. It’s also worth noting whether they have any additional costs, such as withdrawal and penalty fees.
  • Customer support – If you have a problem you need a remedy fast. Every second could cost you money. So, check reviews to make sure they offer reliable and fast customer service. Some brokers will offer 24/7 support, via calls and online chat, in a number of languages. In addition, they should be able to give you information on futures day trading hours, including on presidents day, plus New Year’s Day and Labor Day futures trading hours.
  • Trading software – How good is the trading platform on offer? Do they offer all the charts and technical tools you need to conduct your analysis? Will you have to pay for additional features? Also, does the software allow for rapid execution speeds and straightforward navigation?

Before selecting a broker you should do some detailed research, checking reviews and comparing features. For more detailed guidance, see our brokers page.

Picking A Future

Once you’re up and running with a broker and there’s cash in your account, you’ll need to pick a futures contract. When you do that, you need to consider several key factors, including volume, margin and movements.

Volume

Look for contracts that usually trade upwards of 300,000 in a single day. You’ll then know you can buy and sell at the levels you want, and there’ll probably always be another trader there to buy and sell from you.

Some of the most heavily traded futures contracts available are:

  • E-Mini S&P 500 (ES)
  • Eurodollar (GE)
  • 10-Year Treasury Note
  • Crude Oil WTI (CL)

Once you’ve found a contract with plenty of volume, you’ll then need to consider margins and movements to fit in with your trading style.

Margin has already been touched upon. Depending on the margin deals your broker offers will determine how much capital you’ll need to enter a position. Crude oil, for example, will often demand high margins, so you’ll need a larger account to trade it.

Movement

Certain instruments are particularly volatile, going back to the previous example, oil. This means you need to take into account price movements.

Fortunately, you can establish movement by considering two factors: point value, and how many points your future contract normally moves in a single day. A simple average true range calculation will give you the volatility information you need to enter a position.

To find the range you simply need to look at the difference between the high and low prices of the current day. Although, bear in mind futures markets can gap in price, taking today’s price action outside of yesterday’s price action range. So, what do you do?

  • True high – Today’s high or yesterday’s close (whichever one is higher)
  • True low – Today’s low or yesterday’s close (whichever one is lower)
  • True range – The true high minus the true low

Now you’ve found out the true high and low, if the bond closes one day at 90, then gaps open higher at 91, and reaches an intraday high of 92, then the true range would actually come out as:

  • True high – 92
  • True low – 90 (yesterday’s close, which was lower than today’s low)
  • True range – 92 – 90

Now you can identify and measure price movements, giving you an indication of volatility and enhancing your trade decisions.

Using These Factors

So, with an understanding of comparing volume, volatility, and movement between future contracts, what should you opt for?

E-Mini S&P 500 futures offer a good starting point for a new intraday trader. You can get margins as low as $500 and you’ve got more volume than crude oil. You should also find you have enough action to turn consistent profits, plus you can start trading with as little as $3,000 in your account.

Crude oil is another worthwhile choice. Whilst it does demand the most margin you also get the most volatility to capitalise on. If you’re looking for the greatest profits, many have found riches in the oil game. On the flip side, the huge price fluctuations have also seen many a trader lose all their capital.

The final big instrument worth considering is 10-Year Treasury Note futures. You’ll get plenty of volume, although not as much as you do with S&P 500 futures. Whilst there is still price movement, you won’t get as much volatility as you do with oil. Viewing a 1-minute chart should paint you the clearest picture.

Strategies

Whether you are interested in day trading strategies for Emini futures or Dax futures, all the points and examples below are applicable.

Analysis

Once you’re set up and you’ve got a market in the crosshairs, you’ll need to employ effective strategies to turn a profit. Whatever strategy you decide on, you’ll need to utilise fundamental analysis. Charts and patterns will help you predict future price movements by looking at historical data.

Your initial analysis though will help you identify which factors impact your instrument’s performance. If you were going to trades futures on Treasury Bonds, for example, you’d want to analyse the fundamental factors that drive bond prices. You’d probably want to look at economic activity and policy, supply and demand, investor sentiment, plus stay in tune with recent news.

If you wanted to start day trading wheat futures, you’d want to look at other factors. You’d probably want to get to grips with weather reports and find details on crop yields, alternative grains, plus transportation costs.

Risk & Examples

The best strategies take into account risk and shy away from trying to turn huge profits on minimal trades. Below, a tried and tested strategy example has been outlined.

Example

Let’s say you have $8,000 in your trading account and you’re aiming for a 55% win-rate. You want to risk just 1% of your capital, so $80 a trade. To do this, you can employ a stop-loss. You’d place a stop-loss order five ticks from the entry price, and a target nine ticks away.

So then, your risk on the trade could be five ticks x $13.50 = $67.50, which is less than your $80 max risk. You should also have enough to pay any commission costs. If you can make that reward on 55% of your trades, you’d be left with a respectable monthly profit.

If you increased your risk rate to 2% (which some traders do), you could trade two contracts and potentially double your profit. However, get it wrong and you’ll pay a higher price.

Scalping

Another one of the best futures day trading strategies is scalping, used by many to reap handsome profits. The idea is to limit your losses to only one or two ticks whilst taking any profit, almost as soon as you’ve got it. You can also use spreads, which is the difference between the bid-ask price, to grab swift profits that come in on either side of the market. This makes scalping even easier.

Scalping requires a high volume of trades, but if you’ve got the time, it could help you minimise losses whilst maximising profits.

As you can see, there is significant profit potential with futures. However, day trading oil futures strategies may not be successful when used with Russell 2000 futures, for example. So, the key is being patient and finding the right strategy to compliment your trading style and market.

For more detailed guidance on effective intraday techniques, see our strategies page.

Tips

Turning a consistent profit will require numerous factors coming together. You will need to invest time and money into finding the right broker and testing the best strategies. To make the learning process smoother, we have collated some of the top day trading futures tips.

  • Always have a plan – You have to be well prepared. The trial and error approach will quickly see your account balance hit zero. So backtest your strategy against the market until you have turned it into your own art form.
  • Retain discipline – Too many traders fail because they can’t keep their emotions under control. If you’ve backtested your plan, you know it will succeed, so don’t give into fear or greed. Let the maths guide you and stay disciplined.
  • Be wary of margin – While global futures day trading margins can help maximise profits, don’t let yourself get drawn in too deep. Keep your risk low and your margin minimal and you shouldn’t ever lose so much that you’re out of the game for good.
  • Practice first – Whether you are day trading commodity silver futures or index futures, a practice account is a fantastic place to get familiar with markets and develop a strategy. In addition, futures day trading simulators are funded with virtual money, so you don’t have to risk real capital until you feel confident. See our demo accounts page for more information.
  • News – Your instrument could surge or plummet in price in reaction to news announcements. So, you need to have your ear to the ground for anything that could affect your positions. Some reliable sources include Yahoo Finance, CNBC, and Business Insider.

For more detailed guidance, see our tips page.

Education

The most successful traders never stop learning. The markets change and you need to change along with them. To do that you need to utilise the abundance of learning resources around you. So, if you’re thinking of day trading futures, consider:

  • Books – Get detailed strategies, plus hear stories and advice from some of the most successful traders in the world. Click here to find some of the best books for day trading futures.
  • Blogs – Stay up to date with market trends as traders impart their perspective on online blogs. They are simply a fantastic place to go for tips on day trading in nifty futures.
  • Courses/tutorials – Learn technical analysis and new strategies from successful traders. In addition, you will often get advice on futures day trading signals and the best indicators for your chart setup.
  • Videos – Day trading oil futures videos, for example, allow you to follow experts as they trade and glean useful tricks.
  • Pdf – They’re ideal for having open while trading, allowing you to get the right chart setups and apply strategies in real-time. For example, consider the David Bennett day trading grain futures PDF.
  • Trading rooms – Live futures day trading chat rooms are brilliant sources of information. You can follow others as they trade while asking them questions and benefiting from top tips. Any of the top 5 futures day trading rooms on Google are worth exploring.

Taxes

It doesn’t matter whether you are day trading single stock futures or Vix futures, you will still have tax obligations to meet. Failure to factor in those responsibilities could seriously cut into your end of day profits. So, see our taxes page for more details.

Can You Make Money Day Trading Futures?

Yes, you can. But as the futures day trading success rate proves, it will not be easy. Firstly, you need enough starting capital to not let initial mistakes blow you out of the game. You also need a strong risk tolerance and an intelligent strategy.

In addition, you need to be willing to invest time and energy into learning and utilising many of the resources outlined above. Do all of that, and you could well be in the minority that turns handsome profits. It depends entirely, on you.