In this article we are going to discuss trading futures in a small account. If you have not read Part 1, then go back and read it first. After you have been trading for a while, long enough to be comfortable with your trading system, trading platform and setting up trade orders you may want to consider trading futures. There are several advantages to trading futures listed below.

  • No day trader rules for accounts under 25K.
  • Single line 1099.
  • Tax advantage.
  • 23 hour trading day.

The SEC does not have the day trade rule that limits the number of trades you can take in a five day business period, for accounts under 25k in value. Therefore, you take as many trades as you like each trading day.

If you have ever had to complete the required tax form for your IRS tax return you will really appreciate this benefit. If you trade stocks, ETF’s or options you have to list every trade for the year on this form, and each trade has to match the trades listed on the 1099 from your broker. This is either very time consuming if you do it yourself or expensive if you have your accountant do it for you. If you trade futures you get a 1099 from your broker that is a single entry showing your profits or losses for the year.

When trading futures there is also a tax advantage. If you are trading stocks, ETF’s or options and hold those positions less than one year they are taxed at the short term capital gain rate. Gains on futures are taxes 60% of the gain at the long term rate and 40% of the gain at the short term rate.

Futures open the trading day at 5pm CT and trade until 4pm CT the following day. There are a couple of variations to this, based on the actual contract symbol. Here is a link to the CME Group website – www.cmegroup.com. They list all of the futures product specifications and their symbols.

To trade the DOW futures you would trade YM. Before trading you want to make sure you are trading the correct contract. If you were trading YM today the symbol to trade would be YMH16 on the TradeStation trading platform. The symbol may be different on other trading platforms. Check with your broker.

The picture below shows where to find the list of symbols and how to see the contract specs for a symbol, on the CME Group website.

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The next picture shows the contract specifications and details for YM. Once again, YM is the futures symbol for the DOW.

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It is important to trade the forward month with the most volume. See the photo below that shows March currently has the most volume.

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The picture below shows the current YM contract and the next one to trade after the March contract.

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The picture below shows the TradeStation margin requirements for the indexes. As you can see each product has a different margin requirement. Go HERE to see all of the supported products. Check with your broker for their margin requirements.

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The picture below shows the months and product code for each month. I have no idea how they came up with these codes. They do not make any sense and do not waste time trying to figure it out. Just print this list or memorize them.

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In closing, I just want to remind you that futures are heavily leveraged and be very careful when starting to trade futures. I am not a big fan of paper trading, other than to learn your trading system and trading

platform. When paper trading you do not feel the emotions that happen when trading with real money. Therefore, you can develop bad habits that you could transfer to your live trading. With that said, if you are new to trading futures, you may want to paper trade first to get a feel for how quickly price can move.

If you are trading an account that is $10,000 or less, only trade one contract at a time. Then you can increase one contract per additional $10,000. YM is a good symbol to start with to trade futures. It is only $5 per tick/point.

I hope this helps and Happy Trading,

Tucker