Day Trading Futures

2022-05-06 | Jack Roberts

Regarding popular trading methods, it doesn’t get any more popular than Day Trading. Day trading occurs when traders buy and sell securities within the same trading day.  However, day trading is fast-acting execution that can last a few minutes to a few hours, but the trade is over before the end of the trading session. And that’s why day trading is such a fan favorite, hypothetically speaking, traders can be finished for the day in just a few minutes of trading. 

But, I’m not here to solely talk about day trading, what I want to go into is if traders can pair day trading to futures, and the short answer is yes. But there is a lot to consider, as futures are different from your typical stocks. Futures are binary product contracts on commodities where you can choose to trade them on the indexes such as the S&P 500, the Nasdaq, and Dow Jones. But, I want to go further into the subject to give you better insight into day trading futures.

Day Trading Futures Video Guide

Are You Looking to Trade Futures?

If you are interested in trading gold, oil, and natural gas, then Futures is the way to go for trading commodities. However, if you don’t know where to start or need a little help, join us with the Simpler Futures Membership. Sign up today, and get instant access to the trading room, where you get to trade with professional traders five days a week. You will get real-time trade alerts and discover your strategy with the learning center. So, what are you waiting for, join today, and never trade alone again.

Trading Futures PDT Rule

Traders would be surprised to know that there is no pattern day trading (PDT) rule for futures trading. The PDT rule only applies to stocks and options day traders. According to the Financial Industry Regulatory Authority (FINRA), a pattern day trader is when traders buy and sell four or more day trades within five business days and have less than $25,000 in their trading account. Keep in mind that traders whose accounts are just above $25,000 are not in the clear; your account needs to have a net liquidating value above $25,000, so the trader is not penalized as a day trader. However, as stated before, there is no such rule governing how many trades a futures trader can day trade. 

Futures Margin Requirement

The margin requirement for futures is the net liquidating value that must be present in your account before traders can take on one futures contract. In simpler terms, it’s how much buying power a trader has in the futures market. The example below shows what it looks like; you can see the necessary buying power or the margin to trade specific futures with one micro-future contract. 

For example, the buying power/margin for the /MNQ is $2122.72. Of course, this goes without saying that every contract will be different, so you will have to research which future contracts you can afford. Also, keep in mind that every brokerage firm is different; just because the buying power for one brokerage is a specific amount, it does not entail that it will be the same for another brokerage account. However, generally speaking, If newer traders are looking to get into futures, you can comfortably start a small account with $2000 to $2500 and start trading.

Future Contract example

What is a Margin Call

Margin calls occur when traders who trade on margin have a negative position and cannot cover the margin of the contract they own, this is where the margin call becomes relevant for traders. Traders who are negative in their accounts will be required to make up the difference if the trader holds onto the contract. The brokerage account will liquidate the contract for the trader as they no longer have the authority to trade that specific contract.

Pros and Cons of Margin Trading 

Everything in the market is associated with pros and cons; it will always be a give and take relationship. However, as the trader, you need to understand your risk tolerance and trading discipline. One of the biggest mistakes traders tend to make is having too much leverage without the capital to back it up. One wrong trade can send a trader down a spiraling path of losses, especially when panic sets in, as traders may resort to desperate acts and form bad trading habits to get out of a hole that’s too deep.

Pros of margin trading

  • Able to trade with more money
  • Trade more contracts
  • Possibility for larger gains

Cons of margin trading

  • More risk is involved with borrowed money
  • More money can be lost twice the rate
  • The brokerage firm can liquidate your contact

Types of Margin Trading

There are many types of margin trading that traders can consider. But it boils down to your skill level and the type of account you have. For example, there is intraday trading for any account size, but for larger accounts, traders can trade during extended hours. However, Futures trading hours are generally assumed to be 24 hours, but there are periods throughout the week where trading sessions take a break, but operations resume quickly.  

Best Platforms Trading Futures? 

Brokerage platforms are required for traders to trade futures, but certain platforms are tailored to specific traders. Every trader will need to research which platform they will make their trade on and see which one will benefit them better. For instance, understanding the platform’s policy, the margin they have set, the trading hours, and the indicators they allow onto the platform are things traders should consider. Below are my take on the best platforms for traders. 

  • TradeStation – best for intermediate traders and veterans

Are you ready to trade Futures?

Futures can be a great way to expand your trading portfolio, but whether you are new to futures trading or a seasoned veteran, we can always use a little help and learn strategies that can help you in the market. Join Simpler Trading and start your Futures Membership today. And gain access to the live trading room where you can trade with a professional, get real-time trade alerts, and our learning center where our traders go into their strategies in the futures market. So, what are you waiting for? Sign up today and never trade alone again.

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FAQs on PDT Futures

Q: Can you day trade with less than $1000?

A: No. Day traders need a $25,000 minimum balance in their trading accounts at the end of the trading day, according to US regulations. Click here to learn a strategy around the PDT rule.

Q: Is day trading really worth it?

A: Day trading is fast-paced and that fast pace is not for everyone. And it’s not easy. To answer if day trading is worth you you need to determine how much time you’re willing to invest in learning the craft.

Q: Is there a limit to day trading?

A: If you take four or more “day trades” within a rolling period of 5 business days, then you are considered a Pattern Day Trader, according to FINRA rules.

Q: What are the advantages to trading the S&P 500 E-mini futures?

A: Aside from making profits, trading the Micros is a great starting point for futures traders. You can master your personal risk tolerance, and learn your lessons with smaller risk.

Q: What is the difference between micro and mini futures?

A: Mini futures contracts are which are a normal futures contracts, while Micro E-Minis, which I like to call E-Micros or just Micros, are 1/10th the size of minis.

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