Day Trading Futures – An Overview

| June 11, 2020

Day Trading Futures – An Overview

A futures contract is an agreement to buy or sell a specific commodity or financial instrument at an agreed upon price in the future with help of trading broker, like The contract states the specific date and price at which the contract matures and the quality and quantity of the underlying asset. It’s possible that futures contracts will result in the physical delivery of an asset, but many times futures are a way for investors to hedge risk or speculate.

For new traders, there are a few things to be aware of when learning how to day trade futures:

  • Holding positions overnight: One drawback of going long on futures is that they can open at a far different price, compared to what they closed at the previous day. This can result in unanticipated losses…so day traders often eliminate this worry by closing out their positions and the end of the day.
  • There’s a learning curve: Like anything else, it takes time to learn how to trade futures. But unlike position traders who might only make one trade per week, day traders usually make multiple trades per day. This level of activity tends to steepen the learning curve.
  • Make sure you identify a liquid market to trade in.: Many day traders use the E-mini S&P 500 to trade futures. One benefit of the E-mini S&P is that it trades electronically, so trade executions are quick and very liquid. There are plenty of other markets such as the Dow futures, E-mini Russell futures, and E-mini Nasdaq futures, but each market is different. That’s why it’s necessary to learn about each market’s characteristics before starting to day trade futures.

Now a few words of caution…it takes a well-disciplined trader to succeed at day trading futures. As new traders get more experience and knowledge, the temptation to make marginal trades and/or to over-trade can lead to a lot of problems. Failure is usually due to a lack of preparation and discipline, but new day traders also need to be careful of trade commission’s eating into their profit margin.