Futures contracts are an attractive market for day traders. You don’t need a large capital to get started, and you can achieve significant returns if you trade smartly.
How much do you need to start?
While you will need at least $25,000 for day trading in stocks, you can start day trading futures with only $750, although it is recommended to start with a larger amount, depending on your risk level.
How to choose the best futures to trade
To find the right futures for day trading, you should consider three main factors: volume, margins, and movement.
Volume
You should trade contracts that typically have more than 300,000 contracts traded daily in terms of volume. This volume allows you to buy and sell at the levels you want and ensures that there are other traders trading with you.
Margins
Day trading margins vary from broker to broker. For example, the NinjaTrader broker offers the following margins for the following contracts:
- E-Mini S&P 500 (ES): $500 day trading margin per contract
- Eurodollar (GE): $500 day trading margin per contract
- 10-Year Treasury Note (ZN): $500 day trading margin per contract
- Crude Oil WTI (CL): $1,000 day trading margin per contract
Movement
To determine price movement, you should consider the point value and the number of points that futures typically move in a day. The following list provides the contracts, point value, and average daily movement in points:
- E-Mini S&P 500 (ES) – 1 point = $50, average daily movement 150.63 points
- Eurodollar (GE) – 1 point = $2,500, average daily movement 0.10 points
- 10-Year Treasury Note (ZN) – 1 point = $1,000, average daily movement 0.70 points
- Crude Oil WTI (CL) – 1 point = $1,000, average daily movement 3.2 points
Choosing the right futures for you
E-Mini S&P 500 futures (ES) are an excellent choice and a good starting place for day traders. Margins are low at $500, and the volume is slightly higher than crude oil.
Holding one contract during a typical trading session can result in a profit/loss of $7,518 (150.63 points × $50/point). You don’t have to buy and hold a contract all day; this is just an example highlighting the volatility.
New traders often find that E-Mini S&P 500 futures generate enough movement to create a regular income, and they can start trading these contracts with $3,500 or more in their trading account. Many opportunities for entering and exiting trades throughout the day can be seen by viewing a one-minute chart where the price fluctuates all day.
Crude oil (CL) offers good volume, but it also requires higher margins and is the most volatile. If you held one contract during an average day, your profit/loss could fluctuate by $3,200 (3.2 points × $1,000/point). It is an interesting choice but not recommended for new traders or traders with small accounts (less than $5,000).
10-Year Treasury Note futures (ZN) are another option for day traders. The volume is good but not as high as that of E-Mini S&P 500 futures. The contract also does not have large fluctuations in terms of dollars at risk per contract. For example, if you held a contract for a typical trading session, you could see your profit/loss fluctuate up to $700 (0.70 points × $1,000/point).
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Excluding Eurodollar futures (GE) contracts as an option for day trading unless you enjoy prolonged movement. During a typical trading session, the price may only move once or twice, resulting in few profit opportunities. It is a popular market for long-term traders and institutions, not for day traders. You can view the one-minute chart for this contract, and you will see that it does not move much, making it less favorable for day trading.
The Final Word on the Best Futures Contracts for Day Trading
Based on volume, margins, and movement, you now have several options to consider. If you are just starting, trade E-Mini S&P 500 contracts or 10-year government bond contracts. Both produce a lot of movement and volume every day, along with low daily trading margins.
As you advance, you may also consider crude oil contracts. They have slightly lower volume than the previous contracts, are more volatile, and have higher daily trading margins. This means you should have a larger account to trade them. Eurodollar contracts have high volume but are not a day trading market.
Now that you know where to look, review the chart for each contract and choose the one that best aligns with your trading strategies.
Frequently Asked Questions (FAQs)
When does the futures market open on Sunday?
Futures contracts begin trading in the United States at 6 PM ET every Sunday. The only exception is during holidays. Futures trading holidays typically reflect the broader stock market holidays, but the two markets may close at different times, so it’s best to double-check the precise trading hours before the holiday.
What is the best way to learn day trading futures?
The best way to learn futures trading is to use a demo account with a real broker. Also known as “paper trading,” this account allows you to use virtual dollars while building trading experience and learning about new brokerage platforms. You can take the time you need to refine your strategy using a demo account. When you are ready, you can open a real account and fund it with real money.
The Balance does not offer tax, investment, or financial advice. Information is provided without regard to the investment objectives, risk tolerance, or financial circumstances of any specific investor and may not be suitable for all investors. Past performance is not indicative of future results. Investing involves risks, including the risk of losing capital.
Source: https://www.thebalancemoney.com/best-futures-contracts-for-day-trading-3895766
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