TRADING FOR BEGINNERS

DAY TRADING FUTURES

Day trading requires that all contracts whether bought or sold be closed on the same day as they were established. If a day trader buys a contract, then it must be sold prior to the closing bell on that day for that particular market. Day trading can be done in essentially any market that has sufficient liquidity and that provides the trader with real-time access to prices and immediate order execution. The latter is typically a benefit of online or electronic trading. The most popular markets for day trading include futures, forex and select stocks.

Day trading enables the trader to establish a position over very short time intervals to capture brief price movements. The sudden rally or drop in price following the public broadcast of a news event or the release of an economic statistic presents a common day trading opportunity. So does the sudden break up through technical price resistance or down through support that is often followed by a continued price movement. Still other day traders look for arbitrage opportunities among the prices of related assets. Many day traders believe that their chances are better when forecasting price movements over very short time intervals rather than trying to forecast over weeks or months in advance.

WHY DAY TRADE?

Day trading has two major advantages. First, because positions are not held overnight, day trading may be less risky than position trading in which open contracts are held for several days or more. If day trading futures, the margin required is correspondingly less, usually about half of the standard requirement though sometimes even less and this makes day trading futures more affordable. Second, many day traders enjoy the relief of knowing that all trades terminate by the day's end so no sleep is lost at night worrying over any open positions. Each day represents a new opportunity to earn profit.

WHY DAY TRADE FUTURES?

Futures contracts are available across a broad spectrum of markets including equity indices like the S&P 500, government bonds and notes, grains, meats, energies, precious metals and even foreign exchange. Such a wide diversity of markets means that the futures day trader can almost always find an opportunity somewhere.

Many futures contracts trade electronically and this provides the necessary immediate market access. Moreover, the trading platform provided by a broker typically includes real-time market news, charting capability and even a menu of technical analysis tools all designed to support day traders.

There are a number of futures that have sufficient volume and liquidity to enable the timely execution of buy and sell orders and whose underlying interest or asset has a price volatility sufficient enough to provide day trading opportunities. After all, the more that a price changes during the day, the greater is the potential for profit (and loss!) when day trading.

Day trading futures is done on a regulated exchange within an industry that is itself regulated. In the United States, the federal regulatory agency is the Commodity Futures Trading Commission. Regulation not only helps to ensure a level playing field but also provides a clear mechanism for dispute resolution.

Beyond this, day trading futures holds some key advantages over day trading stocks (within the United States). For example, the margin or cash required to open a futures account for day trading is not subject to the Pattern Day Trader Rules that apply when day trading stocks or equities. Also, how futures trading profits are treated and taxed make day trading futures more advantageous than day trading stocks.

Finally, many futures brokers provide a real-time demo account where a beginner can test their skill at day trading futures as well as learn the functionality and features of the trading platform without cost or risk. See Futures Demo in the box, General Topics, at right and above.

WHAT MAKES DAY TRADING FUTURES POSSIBLE?

In the traditional days of open outcry, to day trade futures meant that you had to physically stand in the trading pit or have a direct communication line to someone who was in the pit. This was the only way that you could both know and act upon current market bids and offers. The privilege of standing in the pit is extended only to exchange members so day traders had to spend money - at times a considerable amount of money - to either buy or lease an exchange membership. The physical presence requirement plus high entry fee meant that few people could day trade futures. Moreover, even someone who was day trading futures had the disadvantage that, because they can only be at one place at one time, trading was confined to the futures pit in which they were standing.

All of this changed with the movement of exchanges to an electronic order matching platform - the beginning of electronic trading. This electronic platform serves as a virtual exchange trading pit where orders are accepted, stored and, if possible, matched and disseminated. By connecting to the exchange order matching platform - such an electronic interface is provided by the broker - a retail trader literally anywhere in the world can both receive real-time market bids and offers on electronically traded contracts and execute buy and sell orders with the speed and reliability necessary for day trading.

The original intent of the exchange electronic order matching platform was to enable trading in contracts during the hours outside of the open outcry session. In other words, it was a supplement to the traditional way of trading. However, popularity of electronic trading encouraged the exchanges to expand the electronic session so that now, most futures contracts are available for electronic trading practically around the clock, from Sunday evening until the Friday close. Consequently, the world of day trading futures has now been opened up to the retail trader who can day trade efficiently and conveniently from the comfort of their home or office.

If you're a beginner, then you should start with a solid education. For a basic introduction to futures trading, you may want to watch our free series of Futures Trading Videos. In the comfort of your own home, you'll have over one hour of lectures covering 8 introductory topics on futures trading all narrated by the President of World Link Futures. Tailored for the beginning futures trader, you'll learn the futures market basics such as how to read a bar chart and common order types, how to calculate profit and loss on a futures trade, how margin works and tips on risk management. You'll even see how to perform a regulatory background check on a futures broker or other industry participant.

What´s in store for 2012? See what some of the industry´s top research analysts and trade strategists have to say about market factors in 2012. Request this free, hot-off-the-press 2012 Outlook Report.

Day trading should not be done impulsively but rather, it must follow the rules of a well-defined trading system. This is something that a beginner trader needs to understand. A trading system specifies when to get into a trade, either long or short, and when to close a trade, either at a profit or at a loss. A trading system must be appropriate for you. Every day trader has their own tolerance level for risk and amount of available risk capital and the trading system needs to be consistent with these parameters. For more information on trading systems, request our free brochure, How to Invest: A Beginner's Guide to Leveraged Investing.

Do you have your own idea for a day trading system? Maybe you’ve spotted a pattern in price activity. It could be a day-of-the-week effect, a time-of-the-day effect, or a new relationship with other, related markets. Many of us have ideas but have been stopped short by the daunting task of translating that idea into a trading system and then properly testing that system. While many trading platforms such as NinjaTrader, MetaTrader and AIQ have become fairly sophisticated in their application for system design and testing, it seems that a trader needs to be part programmer in order to take full advantage of them - and many of us are not, especially the beginner. Our custom trade system programmer can help. He has coding and programming experience with all of the major trading platforms and is even a trader himself. He can translate your idea into a day trading system and then test it. The result may be a fully automated, personalized day trading system that generates investment income for years to come.

Have a question about day trading futures? Then speak to a futures trading professional. They'll help you decide if day trading futures is right for you. Go ahead and Talk to a Futures Professional in the box above.

Finally, before you day trade futures with hard-earned dollars, we recommend that you start in an futures demo account. This simulated trading account is free for 30 days and is a useful educational tool especially for beginners. The professionals at The Futures Training Division of PFGBEST who provide the futures demo account are not only willing to spend the time in helping beginners, but they can also help you set up a real account when you're ready, making the transition to actual day trading easy and stress-free for you.

While this web site was designed to be accessible to all, especially beginners, that is not to say that day trading futures is appropriate for everyone. As with any type of investment, it should be carefully considered along with your personal tolerance for risk and available risk capital. This web site will help you make an informed decision.

Day Trading Books...

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Keywords: trading for beginners, daily trading, day trading futures, day trade futures, about day trading, what is day trading, day trading basics
Abstract: Trading for beginners is education without hype that moves from the basics of day trading to the mechanics of day trading futures.