2. Stocks vs. Options vs. Futures
Stocks Options Futures
Minimum $25,000 $25,000 As low as $3,000
acct. balance (depends on broker)
to day trade
Leverage Between 0x Around 15x for Between 8x and 87x
and 2x ATM option
Equivalents 500 shares 10 ATM calls 1 future contract
Capital 100% short 100% short 1256 contracts = 40%
gains: term term short term 60% long
daytrading term
Non-1256 contracts =
100% short term
3. Advantages of Trading the ES
(S&P e-mini)
No pattern day trading rule
Efficient use of capital
1256 contract means 60% gains/losses
taxed at long term rate
VOLATILE!
4. Futures Basics
Futures trade on margin
Initial margin amount is set by the exchange
and is subject to change
Example: ES is set by CME at $5,625 per contract
Each future has a different tick amount, dollar
value per tick, and trading hours, expiration
dates
Know these before considering trading a specific
future
5.
6. Futures Basics
Futures are speculations about future prices,
NOT what the future will actually bring
Always a buyer and seller
No difference between buying and selling
Contracts have expiration dates similar to
options
But no greeks (other than delta)
At expiration, held contracts must be
performed
Goods exchanged, cash settled, etc
Never hold over expiration!
7. Futures Naming Format
/XXY#
XX = Symbol name
○ S&P 500 e-mini = ES
Y = month code
○ June = M
# = last digit of the year
○ 2009 = 9
Example:
June 2009 S&P e-mini = /ESM9
8. Types of Futures
Commodity Futures
Gold, Corn, Wheat, Oil, Natural Gas, etc.
Index Futures
S&P 500, Dow, NASDAQ, Russell 2000, FTSE,
Nikkei, etc.
Forex Futures
Euro, Pound, Yen, Aussie, etc.
Interest Rates
30 year Treasury bond, 10 year, etc.
Weather
Cooling, Heating, Hurricanes, Snowfall, etc.
9. How Futures Margin Works
Trader puts up a performance bond (margin) to
guarantee against losses
ES - $5,625 initial margin controls $43,300
Gains and losses are settled immediately
Margin call if account less than 80% of initial
margin
Intraday margins are set by the broker (like
TOS) and not by the exchange
These vary from as low as $500 to as high as the
initial $5,625
TOS is 25% of the initial margin = $1,406.25 (30x
leverage)
10. Why Trade the ES (S&P
500 e-mini)
Most liquid of all futures products
Widely followed and discussed
Best representative of the market as a
whole
Best way to introduce yourself into the
futures market
Some people make their entire living off
of this one product
11.
12. ES Basics
Tick size = 0.25 point
Tick dollar increment = $12.50
4 ticks per point
1 point = $50
Average daily range – currently around 25 points
$50 * 25 = $1,250
Trading Hours: 24/5
Intraday hours: 9:30am to 4:15pm EST
Closed from 4:15pm to 4:30pm EST daily
Weekly: Open Sunday 6pm to Friday 4:15pm EST
For more information check out www.CME.com
13.
14.
15.
16. Importance of Volume
Volume and liquidity are very important for
short term futures trading
Bid / Ask should be 1 tick wide
Daytraders need to get in and out quickly
Each future has different time frames when
volume is heaviest
Examples:
○ S&P (ES) – best during US market hours
○ Euro currency (6E) best during European market
hours
17.
18.
19. Importance of Commissions
If you trade with any volume,
commissions are vital
Scenario 1: 10 round-trip trades per day,
5 contracts, $3.50 commissions ($7 RT)
10 * 5 * $7 = $350 per day
$350 * 5 = $1,750 per week
$1,750 * 4 = $7,000 per month
$7,000 * 12 = $84,000 per year
20. Importance of Commissions
Scenario 2: 10 round-trip trades per
day, 5 contracts, $2.20 commissions
($4.40 RT)
10 * 5 * $4.40 = $220 per day
$220 * 5 = $1,100 per week
$1,100 * 4 = $4,400 per month
$4,400 * 12 = $52,800 per year
21. Importance of Commissions
$3.50 comm. $2.20 comm. Savings
Daily $350 $220 $130
Weekly $1,750 $1,100 $650
Monthly $7,000 $4,400 $2,600
Yearly $84,000 $52,800 $31,200
$31,200 = Annual salary working
full time at $15 per hour
22. Profit Potential:
Conservative
Using scenario 2 from before:
10 trades per day, 5 contracts, $2.20
commissions
Assume conservative average of 2 points per
day
2 points * 5 contracts * $50 per point = $500
$500 - $220 commissions = $280 per day
$280 * 5 = $1,400 per week
$1,400 * 4 = $5,600 per month
$5,600 * 12 = $67,200 per year
23. Profit Potential: Aggressive
Same scenario:
10 trades per day, 5 contracts, $2.20
commissions
Now assume aggressive average of 6 points
per day
6 points * 5 contracts * $50 per point = $1,500
$1,500 - $220 commissions = $1,280 per day
$1,280 * 5 = $6,400 per week
$6,400 * 4 = $25,600 per month
$25,600 * 12 = $307,200 per year
24. Choosing a Broker
1. Software / Tools
2. Commissions
3. Data Feed
4. Intraday Margin
$500 to $5,625
5. Customer Service
26. Tools of the Trade: Charts
Futures can be fast movers
Many futures day traders prefer to use
tick or constant volume bar charts
Warning: Prophet charts are terrible for
intraday futures trading
Recommend TOS charts or NinjaTrader
charts with a good data feed
27.
28.
29. Tools of the Trade: DOM
Ladder
Allows you to set multiple price targets
and stops
Easy visual representation of the market
Shows depth of market (DOM)
30.
31.
32. Tools of the Trade:
Technicals
Moving Averages
Oscillators
Trendlines
Price Patterns
Pivot Points
Fibonacci Retracements
Value Areas
**too deep to go into all these today**
33. LEVERAGE WARNING!!!
The majority of futures traders blow out
their account very quickly
Respect the leverage!
Start in Simulation / Papermoney
Do not hold overnight yet
ALWAYS have a stop loss in place
Progress to 1 live contract after
consecutive long term successes
Continue progression slowly