Futures Day Trading in Africa – manual and brokers

What are futures?

A brief history

Before we look at the beginnings of day options and index futures, it helps to understand their humble origins.

Futures contracts are among the oldest derivative contracts. They were born from the need of farmers to hedge against changes in the price of crops, between planting and harvesting. This is why many of the futures still traded today are livestock such as cattle, plus grains such as wheat and corn.

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

Financial derivatives

At first, the term futures may sound a little confusing, but it’s actually surprisingly simple.

A derivative is when a financial instrument derives its value from the price movements of another instrument. 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 rise and fall like stocks. In reality, your futures contract will likely look similar to your stock chart, with opportunities to buy low and sell high.

Lever

Leverage is an essential component when trading futures. This means that you do not have to pay for the entire contract when you start trading. Instead, you pay a minimal upfront payment to enter a position. The initial margin will depend on the margin requirements of the asset and index you wish to trade.

Variety

As a trader, it is important to know the nuances between different futures contracts. For example, futures versus stocks are different. You are not buying shares, you are trading a standardized contract. Each contract has a specific standard size determined by the exchange on which it appears.

Suppose the contract size for aluminum futures is 50 troy ounces. One aluminum futures contract will take your control of 50 troy ounces. If the price of aluminum moved by $2, you would see a profit of $100 ($2 x 50 ounces).

Terminology

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

First Notice Day

A first notice day (FND) for futures contracts comes the day after an investor who has purchased a futures contract can be required to physically deliver the underlying commodity of the contract. The FND will depend on the contract and exchange rules.

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

Last trading day

For example, the last trading day of oil futures contracts is the last day on which a futures contract can be traded or closed before the delivery of the underlying asset or cash settlement. Most futures contracts usually result in a cash settlement instead of the delivery of the physical commodity. This is because the majority of the market is hedging or speculating.

For example, you will need to take into account unpredictable price fluctuations during the last trading day for crude oil futures, or natural gas futures.

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

Best Day Trading Futures Markets

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

Many people think the E-mini S&P 500 is the place to go. You can trade around $75,000 worth of shares with a $3,500 margin, making it accessible to all traders. You will find that E-mini S & P-futures are traded electronically, ensuring fast 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.

In addition, there are several other markets that offer the significant volume and volatility needed to make the intraday profit. Soybeans, coffee, natural gas, Japanese yen, Euro FX, crude oil and the 10-year T-note all deserve a look.

However, before putting all your capital on the line, remember that each market has its own characteristics, and you need 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

While the stock markets require significant initial capital, futures do not. You can open an account and start trading with less than $5,000.

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

2. Futures move with the underlying asset

With options, you analyze the underlying asset but trade the option. However, your profit and loss depends on how the option price moves. The underlying asset may move as expected, but the option price may remain stationary. However, futures move with the underlying asset.

This means you can apply technical analysis tools directly to the futures market. You don’t have to worry 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, trading the same security more than four times in five days, etc.), you must keep at least $25,000 in your trading account.

As a day trader, you must have margin and leverage to take advantage of intraday swings. Fortunately, if you day trade futures, this rule does not apply. It provides access to the markets for thousands who otherwise could not meet the strict requirements set by FINRA.

4. Zero restrictions on short selling

As a short-term trader, you should only take the best trades, be it long or short. With no restrictions on short and long positions, you can remain unbiased and react to your current market analysis.

While the stock market does not allow it. You are limited by the sortable shares your broker offers. You need to borrow the stock before you can sell to make a profit. In fact, financial regulators maintain strict rules to prevent short selling, hoping to prevent the stock market from crashing.

5. Reliable volume data

Since there is no central clearing, you can benefit from reliable volume of data. It is impossible to get reliable volume data from a forex trader, as forex trading is decentralized, so no one has the information. However, with futures you can really see which players are interested, allowing for accurate technical analysis.

Disadvantages

Despite the fact that there are numerous reasons for using day futures, there are still two serious disadvantages.

1. Fees

It can be extremely easy to trade in the futures markets. Too many marginal trades can quickly add up to significant commissions. So, you may have been very successful, but you may have paid an extraordinarily high price.

If you have $25,000 in your account and one S & P E-Mini contract trading, you can pay between $7,500 and $12,500 in commissions every year. That would mean you would need a 25% return to break even. Therefore, you need to have a careful money management system, otherwise you can lose all your capital.

2. Low capital

Trading psychology plays a major role in making a successful trader. But because you can start trading futures with such minimal capital, you have even greater psychological pressure to overcome. This is because you simply cannot afford to lose much. This pressure can lead to costly mistakes and can 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 made it easier than ever to get hold of brokers, accounts, trading tools and resources. How to deal with futures?

Minimum capital requirements

It is 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 that offer just $500. So you would need $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 trades.

Choosing a broker

It is one of the most important investments you will make. Most intraday traders want a discount broker, which gives you more autonomy and lower fees. So what should you look for in a futures broker?

• Fees – Choose a broker with a competitive and transparent fee structure. With regular trading, commission fees add up quickly, so make sure they don’t eat up all your profits. It’s also worth noting if they have extra costs, such as withdrawal and penalty fees.
• Customer Support – If you have a problem, you need a solution quickly. Every second can cost you money. So check reviews to make sure they offer reliable and fast customer service. Some brokers offer 24/7 support, via calls and online chat, in a number of languages. Additionally, they should be able to provide you with information on futures trading hours, including President’s Day, plus New Year’s Day and labor hours for Labor Day futures.
• Trading Software – How good is the trading platform offered? Do they offer all the charts and technical tools you need to do your analysis? Do you have to pay for additional features? Does the software also allow fast execution speeds and simple navigation?

Before choosing a broker, you should do detailed research, check reviews and compare features. Consult our brokerage page for more information.

Choose a future

Once you have a broker and cash in your account, you need to choose a futures contract. In doing so, you need to consider several key factors including volume, margin and movements.

Share

Look for contracts that usually trade higher than 300,000 in one day. Then you will know that you can buy and sell at the levels you want, and there will likely always be another trader there to buy and sell from you. Some of the strongest traded futures available are:

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

If you have found a contract with a lot of volume, consider margins and moves to match your trading style.

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

Movement

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

Fortunately, you can establish movement by considering two factors: point value, and how many points your futures contract normally moves in a single day. A simple averaging calculation is given the volatility information you need to enter a position.

To determine the range, simply look at the difference between the current day’s high and low prices. However, remember that futures can skew prices and take today’s price action outside of yesterday’s price action. So what do you do?

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

Now you have found out that the rights are high and low; if one day the band closes at 90, gaps higher at 91 and peaks at 92, then the true range will actually come out:

• 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 improving your trading decisions.

Using these factors

So, with an understanding of the comparison of volume, volatility and movement between futures contracts, which should you choose?

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

Crude oil is another valuable choice. While it does require the most margin, you also get the most volatility to capitalize on. Looking for the biggest profits, many have found riches in the oil game. On the other hand, the large price fluctuation means that many traders also lose all their capital.

The last major instrument worth considering is ten-year futures. You get a lot of volume, although not as much as you do with S&P 500 futures. Although there is still price movement, you don’t get as much volatility as with oil. When you see a 1-minute map, you need to paint the clearest picture.

strategies

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

Analysis

Once you are set up and have a market in the chairs, you need to use effective strategies to make a profit. Whatever strategy you decide on, you must make use of fundamental analysis. Charts and patterns will help you predict future price movements by looking at historical data.

However, your initial analysis will help you identify which factors affect your instrument’s performance. For example, if you were to trade Treasury bond futures, you would want to analyze the fundamental factors that affect bond prices. You’ll probably want to look at economic activity and policy, supply and demand, investor sentiment, and keep up with recent news.

If you want to start day trading wheat futures, you want to look at other factors. You’ll probably want to go back to weather reports and find details on crop yields, alternative grains, plus transportation costs.

Risk and examples

The best strategies take risk into account and don’t shy away from trying to make big profits on minimal trades. Below is a tried and tested strategy example.

Example

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

So, your risk on the trade could be five ticks x $13.50 = $67.50, which is less than your maximum risk of $80. You must also have enough to pay any commission charges. If you can earn that reward on 55% of your trades, you will have a monthly profit.

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

Scalping

Another one of the best strategies for trading futures market is scaling, which is used by many people to earn good profits. The idea is to limit your losses to only one or two ticks while taking profits almost as soon as you manage to do so. You can also use spread, which is the difference between the price and the bid price, to take quick profits on either side of the market. This makes scalping even easier.

Scalping requires a large volume of trades, but if you have the time, it can help you minimize losses while maximizing profits.

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

Tips

To earn a constant profit, numerous factors will come together. You will have to invest time and money to find the right broker and test the best strategies. To make the learning process smoother, we have collected some of the top day trading futures tips.

• Always have a plan – you need to be well prepared. With the trial and error approach, your account balance will quickly become zero. So examine your strategy against the market until you have turned it into your own art form.
• Maintain discipline – too many traders fail because they cannot keep their emotions under control. If you’ve tested your plan again, you know it will succeed, so don’t be afraid or greedy. Let the math guide you and stay disciplined.
• Be careful with margin – while global margins on the futures market can help maximize profits, don’t get yourself in too deep. Keep your risk low and your margin minimal, and you should never lose so much that you are completely out of the game.
• Practice First – Whether you day trade silver futures or index futures, a practice account is a fantastic place to familiarize yourself with markets and develop a strategy. In addition, futures simulators are funded with virtual money, so you don’t have to risk real capital until you feel confident. Consult our demo account page for more information.
• News – Your instrument may rise or fall in price in response to news announcements. So you have to keep your ear to the ground for anything that might affect your positions. Some reliable sources include Yahoo Finance, CNBC and Business Insider.

Education

The most successful traders never stop learning. The markets change and you have to change with them. To do this, you need to use the abundance of learning resources around you. So when thinking about day trading futures, consider:

• Books – Get detailed strategies, and hear stories and advice from some of the most successful traders in the world. Click here to find some of the best futures books.
• Blogs – Stay on top of market trends as traders give their perspective on online blogs. It is simply a fantastic place to tip for day trading in sober futures.
• Courses / Tutorials – Learn technical analysis and new strategies from successful traders. In addition, you will receive regular advice on futures signals and the best indicators for your chart setup.
• Videos – For example, you can follow oil futures to follow experts as they trade and collect handy tricks.
• Pdf – This is ideal to have open during trading so you can get the right chart setups and apply strategies in real time. For example, consider the David Bennett day trade for grain futures PDF.
• Trading Rooms – Live futures day trading chatrooms are brilliant sources of information. You can follow others as they trade while asking questions and benefit from the best tips. It’s worth checking out any of the top 5 futures rooms on Google.

Tax

It doesn’t matter if you day trade stocks or Vix futures, you will still have tax obligations to meet. Ignoring these responsibilities can seriously cut into your profits at the end of the day. So check our tax page for more details.

Can you make money day futures?

Yes you can. But as the success rate for futures proves, it won’t be easy. First, you need enough startup capital to not let initial mistakes blow you out of the game. You also need a strong risk tolerance and an intelligent strategy.

Additionally, you must be willing to invest time and energy in learning and utilizing many of the above resources. Do all of this, and you may well be in the minority making good profits. It totally depends on you.