How to Day Trading Futures

If you’re ready to start earning a living rather than just earning a paycheck, you can make a lot of money trading the futures market. A futures contract is an agreement between two separate entities on the future price of an asset. Whereas day trading stocks requires a trading account of at least $25,000, many brokers allow you to trade futures with only a $500 account.

Other advantages of trading the futures market are that it is highly liquid, meaning you can get in and out of trades quickly, and that they are traded electronically, meaning you can trade from the comfort of your own living room. We’ll talk about the various futures contracts that are best for trading, and we’ll also go into a couple of trades to get your started making real money in the shortest amount of time.

As stated earlier, the futures market is highly liquid, so traders trading both small and large contract size can enter and exit the market easily, with little to no slippage. The four most popular futures to trade are the S&P E-mini (ES), the Nasdaq E-mini (NQ), the Dow (YM) and the Russell (TF).

Both the ES and the NQ are traded electronically on the Globex electronic trading system. The S&P Emini (which we’ll refer to hereon as the ES) is the largest traded futures market among these four and hence the most liquid. ES trades in tick increments of 0.25, with a dollar equivalent of $12.50. 4 ticks make a point, so a point in the ES is worth $50. The NQ’s are based on the Nasdaq 100 stock index, and also trade in tick increments of 0.25. The dollar equivalent of a NQ tick is $5, so that a point in the NQ is worth $20.

The Dow, or YM, is based on the Dow Jones Stock Market Index, and is traded through the Chicago Board of Trade, or CBOT. YM trades in tick increments of 1 point each, with a tick/point worth $1.

The Russell, or TF, is based on the Russell 2000, and is traded on the Intercontinental Exchange, or ICE. It trades in tick increments of 0.1, with a dollar equivalent of $10. As 10 ticks make up a point, a point on the TF is worth $100.

See the table below for a summary of these four futures contracts.

The key to successfully day trading in the futures market is to develop one highly probable trade and use it over and over again, with larger and larger contract sizes as your trading account grows.

Here are two trades with which to begin building your trading arsenal.

Trading the Gap

A gap in the market is a difference in price between one day’s close and the next day’s open. Traders know that all gaps fill, eventually. One popular trade is to trade this gap fill. This is one way to do it.

Open up a 5 minute candlestick chart. If there is a difference between yesterday’s close and today’s open that is large enough from which to pull profit, place a limit order to trade the break of the first 5 minute bar in the direction of the gap fill.

Your stop would be placed a tick or two above the first 5 minute bar. If the second bar does not break in the direction of the gap, you can trail your entry to the break of the second bar or third bar in the gap’s direction.

Don’t do this past the third bar, because you may be fighting a developing trend day. Your target is gap fill, in other words, yesterday’s close, though some people take profit off at half-gap as well. Make sure you have more ticks to gain from the gap fill than you have to lose from the stop. If the stop is too large, skip the trade.

Early Morning Breakout

Also use a 5 minute chart for this trade. Wait for the market to put in its first half hour of trading. Mark the high and low of the first half hour. Trade the breakout to either the upside or downside of this first half-hour channel. Take profit at +1, +2 points, and so on.

Exit the trade if the market returns to the original 30 minute range.
As you can see, there are many ways to pull money from the market as a day trader. Trading futures is an excellent choice for day traders because of their small account requirement and their liquidity.

Choose among the four most popular ES, NQ, YM and TF markets, and practice these two trades using a free trading simulator before you put your own money on the line.