Futures day trading is the strategy used by active traders of the market to gain profit from sudden market movement.
Almost every Day trader must have to decide in which financial instrument to invest. There are numerous choices including forex, stocks, commodity and options. There are also many choices of your own, and number of advice you get from your friends. No doubt, it is a very difficult choice to select a suitable segment for a better return. To take the right decision, an investor can refer financial expert's best stock tips and market calls recommendations.
Let's keep all these options aside; Now I am going to tell you why futures trading is the best option for a day trader. Day trading in futures is the strategy used by active traders of the market to gain profit from sudden market movement. It is an act of buying and selling a future contract within the same day without holding a position overnight. In day trading a trader enters and exits all position in the same day. It takes lots of knowledge, more experience and discipline to do day trading in futures successfully.
Advantages of Day Trading Futures
1. Futures have zero restriction on short- selling
There are no restrictions on short selling in the futures market. A day traders job is to take only the best grades regardless of whether it is a long or short trade. With an ability to take long and short positions, a day trader can remain neutral and react according to his current market analysis.The stock market is different. Although day traders can short-sell stocks, they are still limited by the shortable stocks offered by their brokers because one need to first purchase a stock through his broker, before you can sell them to gain profit from a bearish move.
2. Day trader can make use of lower initial margin for future trading
To enter a futures position means to enter into a contract to buy or sell. You are not really buying or selling anything yet, so you do not have to pay anything. However, you need to submit an initial margin which is also known as the performance bond this is for as a guarantee of your ability to fulfil the contract. The amount of initial margin totally depends on the product and market volatility. The futures exchange set the amount of margin for Day trading, futures brokers are fully free to decide the initial margin for intraday trading. Your position size should still determine on the basis of your day trading strategy and risk capital.
3.There is central clearing for futures
As futures are contracts, there may be a possibility that contracting parties might refuse to act according to the contract terms. This risk is also known as counterparty risk. However, futures contracts are traded on the exchanges and there is exchange clearing house availab
FAQs
Day trading futures involves the purchase and sale of futures contracts within the same trading day, with the aim of profiting from small price movements. This practice appeals to traders for several reasons, including: Liquidity: Futures markets offer high liquidity, ensuring ease of entry and exit.
Are futures better for day trading? ›
As a futures trader, you can express your opinion long or short multiple times a day or week and you do not have to worry about day trading restrictions applicable to equities or the ability to take a short position in the market. So why miss out on another opportunity because of restrictions? Make a move into futures.
Why would a trader prefer futures options? ›
Futures options can potentially offer some of the same flexibility and leverage for futures trading that equity options do for equity trading. Futures are tradable financial contracts tied to physical products, like corn and oil, or financial instruments, including the S&P 500® index (SPX).
Do options on futures count as day trades? ›
FINRA and the NYSE define a Pattern Day Trader (PDT) as one who effects four or more day trades (same day opening and closing of a given equity security ("stock") or equity option) within a five business day period. Note that Futures contracts and Futures Options are not included in the SEC Day Trade rule.
Can you make money day trading futures? ›
To make money day trading futures you must have a sufficient amount of liquid capital that you are okay with losing. Day traders are often buying large numbers of shares and waiting for a small move before they sell.
Do I need 25k to day trade futures? ›
Why Do You Need 25k To Day Trade? The $25k requirement for day trading is a rule set by FINRA. It's designed to protect investors from the risks of day trading. By requiring a minimum equity of $25k, FINRA ensures that investors have enough capital to absorb potential losses.
How do you successfully day trade futures? ›
Here are seven tips for how to proceed.
- Establish a trade plan. The first tip simply can't be emphasized enough: Plan your trades carefully before you establish a position. ...
- Protect your positions. ...
- Narrow your focus, but not too much. ...
- Pace your trading. ...
- Think long—and short. ...
- Learn from margin calls. ...
- Be patient.
While both have the same degree of leverage and capital committed, volatility makes futures the riskier of the two. You must understand that leverage can be akin to a “double-edged sword”. You can gain money quickly, and lose it in the blink of an eye.
Which is more profitable, options or futures? ›
Futures and options are both commonly used derivatives contracts that both hedgers and speculators use on a variety of underlying securities. Futures have several advantages over options in the sense that they are often easier to understand and value, have greater margin use, and are often more liquid.
What are the cons of futures options? ›
Cons
- Costs: Trading options on futures can involve several types of costs, including commissions, bid-ask spreads, and, for options buyers, the premium.
- Risk of Illiquidity: Some options on futures may be illiquid, meaning they are not traded frequently.
Understanding the rule
If your account is flagged for PDT, you're required to have a portfolio value of at least $25,000 to continue day trading. Your portfolio value is the sum of your cash, stocks, and options, and doesn't include crypto positions.
What is the PDT rule for futures? ›
PDT rules don't apply to futures trading, but futures have their own set of rules; they are regulated by the Commodity Futures Trading Commission (CFTC). Plus, futures contracts use leverage, which means they're traded in margin accounts that require special privileges. Leverage can amplify your gains—and your losses.
How to avoid PDT rule? ›
How to Avoid the Pattern Day Trading Rule
- Open a cash account. If a day trader wants to avoid pattern day trader status, they can open cash accounts. ...
- Use multiple brokerage accounts to avoid the PDT Rule. ...
- Have an offshore account. ...
- Trade Forex and Futures to avoid the PDT Rule. ...
- Options trading.
Futures markets are open virtually 24 hours a day, six days a week; however, each product has its own unique trading hours. Next, each contract specifies the tick size. Tick size is the minimum price increment a particular contract can fluctuate. Tick sizes and values vary from contract to contract.
Can I trade futures with $10? ›
If you are starting with a small amount of capital, such as $10 to $100, it is still possible to make money on futures trading.
Which market is better for day trading? ›
Day traders commonly choose the forex market for its low barriers to entry as well as exchange-traded funds. Long-term investors are often attracted to the commodities market and the market for contracts for difference.
What is the most profitable time to day trade? ›
The opening period (9:30 a.m. to 10:30 a.m. Eastern Time) is often one of the best hours of the day for day trading, offering the biggest moves in the shortest amount of time. A lot of professional day traders stop trading around 11:30 a.m. because that is when volatility and volume tend to taper off.
Is futures trading the most profitable? ›
An investor with good judgment can make quick money in futures because essentially they are trading with 10 times as much exposure as with normal stocks.
