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Julia Ellinghausen

New To Day Trading Futures? Here Are 3 Tips To Get You Started

If you’re looking to day trade futures, but you’re not sure where to start — you are not alone.

For millions of new traders… even experienced stock and options traders… futures can seem like a completely different world.

But let’s be clear: You can get started — and you can be successful — with very little capital and very little experience. You just need to know exactly what you’re getting into and how to reduce your risk from the beginning.

Let’s start by covering off the basics.

The Basics Of Day Trading Futures

If you’ve traded stock options then you’re already a few steps ahead of most when it comes to day trading futures.

If not, don’t worry… It’s not rocket science.

Futures are traded via contracts that are tied to underlying markets like the S&P 500… Or commodities like oil and coffee beans.

Fundamentally, the contracts obligate the buyer to purchase the asset at an agreed-upon price when the trade takes place. Similarly the seller must sell the asset at the agreed price.

If you’re like most traders… You have absolutely no interest in accepting delivery of 100 barrels of crude oil.

So you’re simply trading the price action. Specifically, you are buying and selling these futures contracts based on what you believe the expected price movement will be — up, or down.

Just like any other market.

Candlestick chart showing Buy and Sell buttons

Futures trading offers quick profit opportunities through the buying and selling of price action… but there are some things you should know first!

If you’re watching the S&P and you believe that price will move up… Over any period of time… From one minute to 30 days… And you want to profit from that movement… Futures is for you.

The same is true if you believe price will go down.

You can buy and sell contracts in a matter of seconds.

And you can trade ‘mini’ contracts if you're working with a small account.

As a result — futures offers a way for traders at every level to both buy and sell positions much faster… and with fewer account requirements than traditional stock options.

This means opportunity for most traders.  

Because you can day trade price movement… And generate immediate income. Cash in your account.

But before you run to your broker and start making moves… There are a few vital steps you need to take.

1: A Trading Plan is a Must

Like anything else, if you don’t have a plan — you’re going to get burned. 

Futures trading, and trading in general… Is no different.

You can accomplish this in a matter of minutes — simply by committing your trading plan to paper. 

Know exactly:

  • What your trading strategy is… And specifically what your rules are for entering a trade and exiting. If you’re trading with the help of a tool or indicator, make sure you understand exactly how that tool works and beware of oversimplified ‘red’ light ‘green’ light indicators.
  • Know how long you expect to be in a trade. This variable alone kills most new traders before they even begin. If your trade plan calls for a max time-in-trade of 15 minutes — honor that. The longer you stay in a trade, beyond your allotted time, the more risk you face.
  • Know exactly what your exit should be… if you enter a trade, and you don’t know where or when you’ll be getting out… DO NOT ENTER.
  • Set a daily profit target and loss LIMIT.  Know exactly what you hope to get from the market, and EXACTLY how much you can afford to lose on any given day. Stick to that.
Man doing calculations with calculator and laptop

For any futures day trader just starting out, having a clear trading plan in place — and then sticking to it — is crucial.

A trading plan will avert the risk of emotions like fear and greed taking over when in the market. Therefore, it would be much easier to know when to open a position, when to let profits run, and when to exit when things don’t pan out as expected.

2:  Establish a Risk Management System

Make sure you live to trade another day.  

If you don’t have a plan to manage risk and preserve your trading capital…  You’ll be flying blind.

Therefore, risk management is of utmost importance if one is to stay in the game long enough and accrue significant profits. The best futures trading strategy is one that incorporates a risk management strategy, making it easier to act accordingly when things don’t go as expected.

Make sure you have clear STOPS that prevent losses from being catastrophic. NEVER MOVE YOUR STOPS.

Many traders fail in futures trading by trying to use ‘mental stops.’ When losses start piling up, it is extremely difficult to close a position manually. 

Laptop showing Stop Loss, Take Profit

Don’t rely on mental stops to keep you out of harm’s way in the futures market… set clear stops and then don’t move them!

There is always hope of a trade reversing from a loss for most traders.

A stop loss order triggered when a position is opened helps manage a futures trade much easier than relying on a mental stop. 

The trade will automatically close when losses start to pile and reach a level that one deems to be acceptable.

Therefore, a stop loss order is an important risk management tool that will help keep losses at manageable levels.

Establish a basic rule for how much you’re willing to risk on any trade… Day — and month.

For most traders, 5% is a good starting point. Never risk more than 5% of your trading capital on any given trade. After that, establish a ratio. 2:1 is a very common ratio for most traders… they expect to make 2 dollars for every dollar that they risk. 

Once you’re in a trade, ensure that you can get out with your shirt… that is, if you’re losing everything you put up for a trade… you’ll fail in no time.  25% is usually more than most traders can stomach, and a good starting point for new traders.

So, if you’re putting up $150 for a trade, get the heck out once your losses are around $40… Don’t wait it out.

3: Choose an Appropriate Market

There is no shortage of futures markets. Just like there is no shortage of basketball, football, baseball or soccer games to bet on.

If you don’t know anything about the market you're trading… specifically how it responds to specific events, and what price movement in that market is tied to…

You probably shouldn’t be trading it.

For instance, if you're trading the ES (S&P 500 futures contract)... you should know how that market responds to the following events:

  • Non-Farm Payroll Jobs Report

  • Rates Announcements from the Fed

  • Consumer Confidence and Spending Reports

These are all scheduled reports that come out every month… each of which sends price running in one direction or the other.

If you don’t know how this — or any other market — will respond, take the time to study.

From there, choose a market with price action that supports your trading style. Many traders like the S&P because price movement is manageable, and it presents plenty of opportunities to generate profit.

Trading charts on laptop showing different futures markets to trade (corn, coffee, gold, crude oil)

Make sure, for whatever futures market you choose to trade, you’ve done your homework and understand how price moves in that particular market.

Others love Crude Oil thanks to its volatility. Same for specific currency contracts.

If you’re not sure what market is right for you… Consider this:

  • Trading Strategy: Which markets best suit my trading strategy and risk tolerance?

  • Price Action: What is the historical volatility of my selected market, and can I stomach the price swings that may come my way?

  • Familiarity: Do I know anything about the underlying assets that the market is tied to?

  • Historical Correlation: Do I know what events and dynamics worldwide that this market is tied to?

For those of you that are reading this thinking, ‘Gosh, I know a little bit about the S&P but not much about anything else — what now?’...

Here are some markets for you to consider:

  • ES Mini - S&P 500: Fantastic for new traders with small accounts who want to trade price action that’s methodical with manageable volatility. The ES is also easy to study, has plenty of liquidity, and lots of historical volume to give you great support and resistance levels.
  • EURUSD - Euro / Dollar: Also an affordable contract for small account holders with a bit more volatility tied to world events and headlines. Same as the ES, this market has great historical volume, deep liquidity, and can be quickly studied — even if you’re new to trading.
  • CL - Crude Oil: For those of you that like big price moves and want a bit more of a rodeo experience — take the CL for a ride. Beware of the risks associated with the price moves and for God’s sake keep an eye on the oil headlines! If you like risk… you’ll have fun with the CL.

Above all, be sure to watch the following with any market:

  • Economic Calendar: This is a schedule of reports that is released on a monthly basis — each with different levels of impact (volatility) for any given market.
  • Pre-Market News: Keep an eye on the headlines — especially those that are coming in from abroad going into any trading session. Extreme news… good or bad… can GAP the market up or down on any given day — right at the open.
  • Volume Levels: Price isn’t what you should be watching… that’s simply an entry and exit point. VOLUME is what drives the market, specifically the institutional traders (hedge funds and big banks). You need to know the price levels at which the big players like to enter the market.

Okay, so now you know enough to be dangerous. And if you’re new to trading… perhaps it’s best to accept that this is exactly what you are right now… a bit dangerous.

Before you race to open your account and start trading… make use of the following resources:

Excited trader watching laptop pumping his fist

Spend some time practicing in a demo account before opening a live account… you’ll be glad you didn’t jump the gun before you were ready!

You are mere steps away from getting started!  

Please be sure to do your homework. Practice before you start trading in a live account. And enjoy the process!

We are here to help.

Futures Trading: Frequently Asked Questions

What are trading hours for futures and popular products?

Futures are slightly different from mainstream investment products. Unlike stocks which can only be traded between 9:30 a.m. and 4:00 p.m. ET, futures markets operate 24 hours a day, six days a week. However, it is important to note that each product in the futures market has its own unique trading hours. The most popular products on this front are commodities currencies, market indexes, and cryptocurrencies.

Can I day trade futures?

Yes. Futures are some of the tools used to trade various assets in the capital markets as they present a unique opportunity and pathway for profiting from price changes. Most brokers offer a platform that allows traders to speculate on the prices of the various assets, from stocks to cryptocurrencies, commodities, and currency pairs.

Why trade futures contracts? 

Futures contracts offer an opportunity to speculate on the price of a financial instrument or commodity. Speculating correctly on the direction price is likely to move could lead to the accumulation of significant profits based on the price difference and contracts bought. 

Which indicator is best for futures trading?

There is no one specific indicator that is appropriate for trading futures contracts. The idea is to settle on one or two indicators that provide insight on the direction the market is moving, and pinpoint the ideal time to open a position, and when to exit.

How can I get better at futures trading?

Practice makes perfect. Most brokers offer demo accounts whereby one can practice futures trading, risk free. The idea is to trial various strategies and use various indicators to come up with an ideal trading strategy before going live. 

What do I need to know before trading futures? 

Futures trading offers an ideal opportunity to trade various instruments. While the prospect of making profits is high, so is the risk of incurring losses. Therefore it is important to incorporate reliable risk management strategies.


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