Day Trading Futures. The Manual

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Also, the markets you're trading are very important to the platform you are going to be executing on; for example, some platforms we offer are not capable of trading Options on Futures or Forex, while some platforms we carry can handle it all. Some platforms are capable of trading Asian markets, while some platforms deal only with a handful of markets. Again, this is where talking to one of our brokers comes in handy.

Navigating the futures trading markets is not understood overnight. It can often take years of preparation and research, and you can never learn enough patience when you're trading live. Just as paramount as any other prerequisite for trading futures is a proper commodities futures trading psychology : one that will allow you to determine the difference between pain tolerance and denial, between responsible targets and greed, and a mindset that won't force you to keep trading when it's time to step away from the computer.

There are many commodity futures trading strategies that can be employed; several of these methods and brief descriptions can be found below:. Spread Trading - A type of trade where a single position in the market consists of the simultaneous purchase of one futures contract and sale of a related futures contract as a unit. Options on Futures - The purchase or sale of derivative instruments that grant the trader the right, but not the obligation to execute a trade on underlying futures contracts. Day Trading - Day trading consists of entering futures positions and exiting those same positions within the course of one day's session.

Position Trading - Denotes holding a position for a longer period of time that may involve hours, or even a few days or longer. Scalping - Scalping involves the very fast execution of trades in hopes of taking advantage of small and frequent price changes. Swing Trading - Swing trading is a type of position trading that attempts to capture potentially larger price movements than those involved in quick scalping futures trading strategies.

The goal is to establish a position as price breaks out of this trading channel concurrent with a spike in open interest, thereby taking advantage of the increase in volatility and catching a strong trend move. From candlestick formations to the commodity channel index, from condors to turtle trading, there's an enormous catalog of tools and methods available for traders to consider. One method I have noticed is surprisingly under represented among retail traders is futures spread trading, where a single position in the market consists of the simultaneous purchase of one futures contract and sale of a related futures contract as a unit.

I call it surprising because some of the most invested players in futures trading - and arguably the most sophisticated - include large speculators and commercial firms who regularly employ spreads. This includes traders in the markets who often actually buy and sell the physical commodities we trade. Farmers, ranchers and other food growers along with food producers, petroleum companies who either drill for oil or natural gas or refine these products - or both, financial institutions with enormous holdings in treasuries, equities or currencies, mining interests and their buyers - all these areas of production and distribution employ futures trading spreads from time to time as an important aspect of their businesses.

Indeed, spread trading futures is a fundamental and essential part of the commodities futures markets. At the same time, despite the remarkable increase in interest and in the growth in the volume of the futures markets over the years, spread trading is typically dismissed by most other traders in search of a futures trading strategy.

With so much attention focused on other approaches related to straightforward directional trading and within that category, day-trading it's not difficult to see how spread trading futures can be overlooked. Spread trading futures can also be challenging to figure out anyway. On the surface, buying July soybeans and selling November soybeans, for example, might look like a downright futile endeavor.

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Lower Volatility: many futures contracts can be extremely volatile, not just during their U. Certain types of spreads can greatly reduce volatility risk for futures positions and be a viable substitute for placing stop orders. In this case, a spread might enable you to withstand the "surprises" that often appear when you rise to a new day.

Less margin: because of the lower volatility, the exchanges set margin requirements for many futures trading spreads that can be much less than an outright futures position. But, why bother educating one's self on the inner workings of futures trading spreads? What advantages come with lower volatility and lower margins? Those qualities by themselves don't very strongly suggest futures spread trading is worth pursuing.

Well, consider this: those same large speculators and commercial firms who regularly employ spreads - again, some of the most invested and arguably the most sophisticated players in futures trading - are often employing spreads based on market conditions and events that recur at periodic intervals.

Maybe the most obvious of these intervals is the cycle of weather from warm to cold and back to warm. For agricultural and energy futures markets, weather - more accurately the seasons - can have an important effect on price movement. For example, enormous supplies of soybeans, once harvested, dwindle throughout the year.

The same goes for other agricultural commodities such as wheat, corn, sugar, and cotton. Seasons and weather changes affect energy prices as well. Demand for heating oil typically rises as cold weather approaches but subsides as refiners meet the anticipated demand. Memorial Day typically marks the beginning of the "driving season" in the United States and similarly, a vast number of the rest of the world's population prepares to "go on holiday.

Seasons and weather changes aren't the only cycles affecting the markets. Cycles in the financial arena can affect related futures trading markets.

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Consider how a nation's fiscal year and tax due date is often at variance with others who are important trading partners. That can influence currency flows and the forces on interest rate-sensitive instruments. Spread trades can take advantage of these types of cycles. Consider this: Market-driven U. And how that spread found itself into this article leads me to the heart of the article: where can you find out more information about futures spread trading? They may be harder to find, but there are some very good sources of research on futures spreads available for your investigation.

My personal favourite is Moore Research Center, Inc. They're responsible for the description and record keeping of the interest rate spread I just cited. Although spread futures trading represents an important slice of the overall trading volume in the futures markets - and is used as a futures trading strategy by some very sophisticated participants, I see it as an approach worthy of investigation by futures traders more broadly, including most of our readers.

Even if spread trading futures can take on the directional characteristic of straight futures trading, it is certainly an overall different approach and that can be the trading futures strategy diversification you're looking for. As is always the case when we share trade proposals of this sort, we want to make sure we square up our discussion with the always-important information.

Spread trading like all futures trading, isn't without its risks. Even with regard to the annual cycles referenced above, which will inevitably ebb and flow both daily and longer term - no spread works every time. Just look at how some summers are hotter and dryer - and at more critical times - than others for an example of what can affect a grain, livestock, energy, possibly even another type of futures trading spread.

Make sure you're aware of the risks to trading futures spreads as you should with any futures trade. A spread usually comprises of multiple futures related positions. If we have to recognize the spread for margin purpose, there needs to be an economic connection between its constituents. Gold and silver are fellow travelling precious metals; however, formally recognizing the spread by exchanging clearing house is needed if we have to derive the spreads benefits. In most of the cases, the benefit is reduced margin requirements. Selling Gold against Silver purchase wagers on an improvement in silver's buying power, whether it derives from a rise in silver's price or a decline iThere is a variety of "Spread Trading Software" that can help you analyze your trading needs gold's.

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A spread, therefore, gives you an opportunity to profit regardless of overall market direction. The price of crude oil is a vital global economic factor. This means that day trading is often influenced by political and commercial concerns. If the price of oil remains high over a period of time, cost of products like fertilizers and plastics are also inadvertently affected.

Crude oil futures are standardized, exchange-traded contracts in which the contract buyer agrees to take delivery, from the seller, a specific quantity of crude oil e. Wheat futures are standardized, exchange-traded contracts in which the contract buyer agrees to take delivery, from the seller, a specific quantity of wheat e. Producers and consumers of wheat can manage wheat's price risk by buying or selling wheat futures.

Producers can deploy a short hedge to lock in selling price for the wheat they produce while the businesses that require the wheat can make use of long hedge to secure a purchase price for the commodity needed. There is a variety of "Spread Trading Software" that can help you analyze your trading needs.

Trading is truly a fascinating pursuit. The markets can in still excitement, frustration, irritation, exhilaration - really a wide range of emotions - conceivably, even within a single trade. Trading is definitely one of those undertakings where one has to constantly study, evolve and grow. There are also a number of different approaches to trading, including day trading, swing trading and position trading.

One narrowly defined approach to trading - probably most relevant for day traders - is trading around economic reports. The release of economic reports occurs almost daily. Most come from the U. Some garner considerable attention by traders; others draw barely a thought, much less a glance at their impact on the markets. This article doesn't attempt to detail any particular number of them and their significance.

Rather, it lists some pointers that can help traders prepare for reports releases. This helps to eliminate some, but not all, of the prevailing price risk facing commodity producers. It also helped to build a more liquid market environment for the commodity producers themselves. Again, before the creation of the commodity futures trading markets , contracts were drawn up between the two parties specifying a certain amount and quality of a commodity that would be delivered in a particular month In , a central dealing facility was opened in Chicago, USA where farmers and dealers could deal in 'spot' grain, i.

Commodity Futures Trading evolved as farmers and dealers committed to buying and selling futures contracts of the underlying commodity. Perhaps surprisingly, until only about forty years ago, trading futures markets consisted of only a few commodity farm products, however, now they have been joined by a huge number of tradable financial and other tradable products such as precious metals like gold, silver and platinum; livestock such as hogs and cattle; energy contracts such as crude oil and natural gas; foodstuffs like coffee and orange juice; and industrials like lumber and cotton.

Trading commodity futures and options involves substantial risk of loss.

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The recommendations contained in this letter are of opinion only and do not guarantee any profits. These are risky markets and only risk capital should be used. Past performance is not necessarily indicative of future results. For beginners, futures traders can also check detailed comprehensive trading futures market insights and strategies in commodity futures trading through our educational resources, articles, other Beginner's Guide To Trading Futures which are mentioned below:. The risk of loss in futures trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition.

Of course, these are just some of the commodity futures contracts traded every day — on some of the oldest and largest exchanges in the world. Treasury bonds, yr. T-notes , currencies i. Compared to the majority of assets you can trade, futures contracts have particular feature to them. This involves the means by which futures contracts are traded. Instead of requiring a financial commitment equal to the value of the asset, for futures contracts only a fractional commitment is required. This is the concept of leverage.

For example, the standard futures contract available for trading gold is equal ounces of the metal. However, it is allowable to enter a position in gold futures for a fraction of that.

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The effect of leverage is that a change in the price of one hundred ounces of gold results in a magnified change in the value of the leveraged futures contract. This magnifying effect on the price change of an asset sets futures trading apart from most other types of trading. Another important difference in futures trading is that buying futures — expecting a price increase, or selling futures — expecting a price decrease, are equally allowable with the same margin requirement. In other words, taking a long or short position in the market provides equal opportunity and equal risk.

And trading futures not only calls for an understanding of the rewards and risks involved, it requires a trading account. Whether you choose to open a self-directed futures trading account, or one where a broker supports you in your trading — in some large or small way — there are several important factors you should consider. You might want to consider the features of your trading platform i.

There are three fundamental strategies that futures traders employ: going long, going short, and spreads. Learning them can help a novice investor become successful when engaging in commodities. Education in the various aspects of the industry is necessary in creating profits and avoiding financial loss.

When going long, a trader buys a contract in the hope that the value will increase in the future. He keeps the contract for a relatively long period in anticipation of a favorable price change. When going short, the investor is betting on the opposite. The commodity will decline in price as time passes. He sells or shorts the futures contract when the price is currently high and usually seeks to buy it again at a lower price point in the coming months.

Long and short positions involve buying or selling futures contract to take advantage of price fluctuations. Unfortunately, no one can accurately predict the future and the risks are large.

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Spreads can reduce the uncertainty; instead of entering into a single futures contract, investments are spread into multiple contracts with contrary positions. Calendar spreads are an example of this type of strategy, and involve the simultaneous purchase and sale of two contracts of a single commodity with different delivery dates. Investors seek a profit from the difference between the two positions. For new investors, going long, short, or trading in spreads can be a confusing experience.

Fortunately, novices can seek advice from a broker. The broker can recommend different strategies and types of spreads, which an investor can adopt until he learns to create his own personal trading strategies. The broker can also recommend tools, such as trading software, which will help an investor analyze market trends and the behavior of various commodities.

One of the ways a broker might recommend that commodities traders minimize the risks involved when dealing in commodities futures is to engage in futures options trading. Unlike a straight futures contract, a futures option gives the trader the right to buy or sell a commodities contract at a predetermined price. Trading in futures options is an effective strategy to limit risk and leverage. When a trader purchases a futures option, his losses are limited to the price paid for the option.

On the other hand, it allows the trader to control a more expensive asset or commodity without having to purchase it outright, as is the case in a conventional futures contract. There are two types of options available: "call," and "put. Essentially, the options holder has right to buy or sell, while the other party has the obligation to buy or sell. Call and put options can be exercised by the options holder before, or even during the contract expiration date. Buying call options is a good move for traders who believe that the price for a particular commodity will rise within a certain period.

Because they can choose not to exercise their right to buy, or exit the option before the contract ends, they run a much lower risk compared to a straight futures contract. This is also true for traders buying Put options. If the price of a commodity falls below a certain strike price, they have the right to sell their commodity futures contract to a seller with minimal loss on their end. While futures trading options can help minimize trade risks, it's important to remember that on its way, options trading can still lead to a loss, particularly if a trader doesn't use any other strategies to complement their trading.

In order to be in a better position to profit from the commodities market, it's important to do keep updated on emerging market trends and events. Understanding the basics of futures trading enables new investors to increase their chances of earning. Premium and discount futures are brokers' terms which describe the state of a particular futures contract. Although the institutions and the governing rules and regulations behind the contracts have evolved considerably over time, the concepts behind futures and options contracts and the purposes they serve remain largely unchanged.

Futures markets are created to serve cash market needs and therefore seek to reflect cash market conditions. The world prices its cotton at a premium or discount to the Cotton No. The unique characteristics of cotton as a plant are revealed in the complex grading standards of the cotton futures contract.

In , NYCE implemented the certificate system. Under the system, a certificate stipulating the grades of cotton became good for delivery, passing from hand to hand like a stock certificate. This became the standard for recording and guaranteeing the quality of each specific bale of cotton, a measure necessary to ensure the validity of the futures contract as a benchmark for pricing.

here The Cotton No. Contracts are listed for March, May, July, October and December plus one of more of the 23 succeeding months. No origin is specified. The price is quoted in cents and hundredths of a cent per pound. In the spot month contract nearest expiration there is no limit on or after the first notice day. Floor trading hours are a. Eastern Time. Electronic trading hours are a. The primary cotton classing components are colour, length, micronaire and strength. Micronaire is a reading of the coarseness of the fibre measured by its resistance to air passage.

Any longer staple does not carry a higher premium. Industry standards and practices have periodically led to specification changes. The minimum grade of cotton deliverable against the contract was raised to low middling from good ordinary in A contract permitting southern delivery was introduced in Trading in the Cotton No. In recent years the exchange has adjusted the contract specifications to reflect industry practices. Beginning with the May Cotton No. The stability and continuity of the futures market function is based on the standardization of the contracts to reflect cash market conditions and practices.

ICE continuously monitors the performance of its markets and the changing cash market conditions. Adjustments have been and will continue to be made to the contract as cash market conditions, crop characteristics and industry practices demand. Proposals for new contracts are also considered and evaluated for potential introduction to the market. The evolution of the cotton certificate system illustrates how the exchange can change its procedures and practices while maintaining the essential concepts of its primary functions. Today the certificate system still serves its original purpose, but the development of the Electronic Warehouse Receipt EWR system has allowed the assignment of ownership of a bale of cotton to move from a cumbersome manual exchange of paper to a completely electronic transfer and record of the transaction.

With ever-increasing globalization, the ability to transfer ownership instantaneously via electronic means ranks with the development of the steam ship and the transatlantic cable as a change in the movement of critical market information.