Advantages of Same Day Futures Trading
All positions must be closed by the end of the day, and no positions are left open overnight when trading futures on the same day. A futures trader should sleep peacefully at night as there is no risk.
Often, futures open at a significantly different price than the previous day’s closing price. Price volatility means that the chances of unexpected losses or gains increase when positions remain on the books at the end of the trading session.
A person can learn a lot about futures markets in a short time by trading futures on the same day. Day traders typically make more trades each day; compare this to position traders who may only make one trade a week. Essentially, a person accelerates their trading experience and knowledge through same day futures trading.
Disadvantages of Same Day Futures Trading
A day trader must follow strict discipline to be successful. The temptation to make marginal trades and overtrade is always present in futures markets.
Commissions can add up very quickly in same day futures trading. Many day traders end up at the end of the year with their commission bill being massive. For example, a trader with an account valued at $20,000 can have a single trading day for an E-mini S&P contract, costing between $5,000 and $10,000 in commissions by the end of the year. A day trader must achieve a return of 25-50% on trading to compensate.
Most people who trade futures on the same day are unable to make money. Lack of preparation and discipline is usually the reason for their failure. Day trading can be a merciless game. However, for those willing to do the homework, create a plan, and stick to it with discipline, same day futures trading can be a profitable endeavor.
Best Markets for Same Day Futures Trading
The market of choice for many day traders is the E-mini S&P 500. It is a pure play on the stock market.
E-mini S&P futures are traded electronically, allowing for quick execution of trades and a highly liquid environment. Dow futures and E-mini Nasdaq and E-mini Russell futures are also popular among futures traders focusing on the stock market.
The 10-year T-Notes, soybeans, crude oil, Japanese yen, and euro futures have enough volume and daily price volatility to be candidates for same day futures trading. Each futures market has different characteristics, so one should study the markets before trading futures to discover and refine strategies and create a plan.
Volatility is a Key Factor for Day Traders
There are times when the benefits of day trading outweigh the benefits of long-term investing. Market volatility tends to determine the most suitable approach to the markets.
In high volatility, liquidity, and extreme fluctuation market conditions where prices move up and down hysterically throughout the day, it is best to open and close positions within the same day or to trade futures on the same day. However, in trending markets, you may find success in holding positions overnight and trading on a longer-term basis.
Long-term trading can mean holding a long or short position overnight, for a few days, weeks, or longer periods. Volatility tends to be a paradise for day traders and a nightmare for investors. However, a lack of volatility in the markets can often frustrate day traders.
Questions
Frequently Asked Questions (FAQs)
Why do day trading rules not apply to futures contracts?
If you are day trading stocks, you will need to maintain a minimum equity balance of $25,000 in your margin account. This rule does not apply to futures trading, as futures contracts are regulated by a different entity. Stocks fall under the jurisdiction of the Securities and Exchange Commission (SEC), which enforces the pattern day trader rule. Futures are overseen by the Commodity Futures Trading Commission (CFTC). The two regulatory bodies are similar, but they have their own differences, including different restrictions on who can day trade.
When does the actual day of futures trading start and end?
Day trading is defined as opening and closing a position within the same day, but the nearly 24-hour trading window for futures complicates that definition. In fact, it does not matter how a trader defines day trading when using futures, as there are no day trading restrictions compared to long-term trading. The CME Group maintains schedules for various futures products in the United States, but the hours will not necessarily align with the start or end of the calendar day.
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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts presented in our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
Was this information helpful?
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Sources:
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts presented in our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
Source: https://www.thebalancemoney.com/day-trading-futures-809360
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