Futures Trading

Futures trading refers to the acquisition and sale of futures contracts. A futures contract is an agreement that a single or set of currencies, stocks, bonds commodities or other values will be sold or purchased at a fixed price in the future. Futures are bought and sold on exchanges. In the case of the E-mini S&P (symbolized as ES), the Chicago Mercantile Exchange (CME) serves this purpose exclusively. E-mini trading has been around since September of 1997 and has become the most popular market for futures trading. Electronic E-mini futures trading occurs nearly 24/7, extended far beyond the time frames of non-electronic trading. Many traders are partial to the E-mini and trade it exclusively, as it provides a reasonable level of consistent profitability. According to the SEC, “the E-mini S&P 500 contract alone accounts for about 77 percent of total US stock index futures and options activity.” There are actually more contracts traded in the E-mini as compared to the regular S&P 500.

When trading futures, there are two distinct players: day traders who place orders at the CME – pit / open outcry traders and those who trade on the Internet (via Globex). Pit traders frequently engage markets other than futures. This fact, combined with the ability to place orders directly at the exchange without Internet latency, are two reasons why pit trading is still popular. Electronic futures trading, either at home or in a business setting, is still considered professional day trading. Companies all over the world employ individuals who electronically day trade systems, moving large sums of money to effectively manipulate the market. For example, on May 6, 2010, 75,000 E-mini contracts were sold causing a “flash crash.” The CFTC (U.S. Commodity Futures Trading Commission) performed an investigation into the crash, ultimately determining it the result of a single individual. In 2004, electronic trading volume surpassed open outcry traded volume. It is safe to say that electronic futures trading is here to stay and is one of the most popular types of day trading.

Besides the CME, another electronic system is used for futures trading – the ICE. Handled by IntercontinentalExchange, Inc. the ICE is best known for the Russell 2000 contract. Compared to the E-mini, the Russell is less popular, with an average daily volume of 150,885 as of April 2010.

Numerous online day trading programs (like NinjaTrader and TradeStation) interface with exchanges like the CME through data feeds. On average, once an order reaches the CME or ICE futures trading system, the order is processed on a first-come, first served basis. Both exchanges execute the trades in milliseconds, providing the day trader with almost instantaneous interaction. Data feed services are highly competitive, with day trading programs having the ability to use any external feed. Two very popular data feeds for futures trading are Kinetick and ZenFire. Day traders prefer the fastest feeds, in order to prevent being “stopped out” by other traders.

When trading E-mini futures online, it is important to remember each quarter month: March, June, September, and December. Each month, contracts roll over to a new session. Traders can be caught off-guard, wondering where all the volume is (when everyone else has rolled over to the next quarter prior to expiration). For this reason, remember to roll over contracts (the latest) by the third Thursday of each month listed above. Volume will shift to the new contract at market open (9:30 a.m. U.S. Eastern Time) on this Thursday. On rollover day, traders often experience unpredictable market volatility.

A big advantage of futures trading compared to stocks is in how profits can be made. Stock holders profit when the stock increases in value. When stocks decrease, money is lost. futures trading is a two-way street. Profits can be been when price is either rising or falling. futures trading is far less expensive to get into. Stocks require upwards of $20,000 for investing. Futures trades need at least $3,000 to have a successful go at the markets.

Forex trading is often appealing because of “zero broker fees”, worldwide interest and the variety of currencies available. In actuality, Forex traders trade against their brokers. In futures trading, the broker is your indifferent companion – he or she makes money regardless of your profits. In Forex, your broker makes money when you lose. Forex is unregulated. The E-mini is overseen by several U.S. government agencies. Regulation helps protect against “fat finger” errors, with redundant safety nets preventing human error. Forex is much more of a free-for-all, with questionable brokers and agencies setup to cash in worldwide. In addition, the CTFC conducts surveillance on the activities of large traders, key price relationships and relevant supply and demand factors.

Since futures trading is accessible to traders of all time zones, there is often confusion in determining market open and close times. Using online calculators (such as the one offered at http://www.timeanddate.com), traders can get an understanding of time differences. Generally speaking, the A session of E-mini offers the best futures trading. Day Trade To Win defines the A session from 9:30 a.m. to 12:00 p.m., U.S. Eastern Time. Floor traders push the markets into new directions, providing more opportunities compared to the relatively flat overnight session. Also, this A session is when businesses along the U.S. East Coast open for business – the start of the business day for the United States. Keeping this in mind, traders from all over the world stay awake during the wee hours of the morning to trade the E-mini at this most opportune time.

Most day trading courses offered by Day Trade to Win focus on the E-mini because we believe it’s the best market to trade. To become a successful E-mini trader, we offer effective strategies starting at $197 (the Floor Traders Secrets Manual) all the way up to the Mentorship Program, offering 8 weeks of one-on-one trading. If you’re serious about futures trading, Day Trade To Win is a one-stop shop.