How to trade mini futures

If you're new to futures trading you most likely have some questions about how money is actually made in the markets. In Part 3 of the Emini Day Trading Series, we will cover margin requirements, the different trade types, and the commissions a trader pays.

We will then take a closer look at potential day trader income over the course of a month and year when trading with various contract sizes. One of the great advantages of the futures market is the excellent leverage available to traders. This high leverage allows even those with smaller accounts to get started with trading a single Emini contract while still not taking on too much overall risk. It's true that leverage can be a double-edged sword for traders, both increasing potential profits and potential risk of loss, but with a good plan and a defined maximum risk this increased leverage is a very useful tool.

Essentially margin is what your broker uses as collateral for you to take control of a futures contract. In order to use leverage to our advantage, we need to understand our total risk on any given trade and plan our positions accordingly.

This is ideal, especially for a newer trader, as it allows occasional losses without decimating the health of our overall account. Novice traders often focus on how much profit can be made, but experienced traders will tell you that risk management is a crucial part of their trading approach.

Keep your risk low through appropriate position sizing relative to your account size and you will be able to fully enjoy the benefits of leverage available to futures traders. In the futures market we are able to trade and make money when the market is going up or going down. Compared to some markets and many individual stocks, the flexibility we have to trade in either direction with futures is a major advantage. We don't need any special account permissions from our broker or minimum account sizes to sell the market, as there is no practical difference in the futures market between going long and short.

In case the terms long and short are unfamiliar to you, let's quickly define them. When a day trader enters a long trade, they are buying a contract in expectation of the price going up so they can exit at the higher price for a profit.

How to Trade Futures | TD Ameritrade

Many traders will use the terms "buy" and "long" interchangeably. On the other hand, when a trader takes a short trade, they are selling a contract with the expectation that price will go down. So how does a trader make a profit on a contract they don't already own when price drops and the contract becomes worth less?

When short selling, we are essentially "borrowing" a futures contract we don't own from our broker with the intention to buy it later called "covering" , effectively returning the contract to the broker. We return the contract to the broker at the original borrowing price and get to profit from the difference on the sale. During actual trading, both trade types act similarly when executed and there is no difference in trading costs between them.

Now that we understand margin and know that we can trade long or short with equal ease, we can look at some specific examples of how we make money or sometimes lose money on our trades. These examples are very basic in execution and in terms of trade management, but they should give you a good idea of how trades are taken and how we exit them. We will also explore the commissions and exchange fees we need to pay to take part in the futures market, as this is part of our cost of doing business as day traders.

In this example we will take a look at a typical trade we do here at Samurai Trading Academy. In most cases, we enter all trades with an initial profit target of 8 ticks and a maximum potential loss of 5 ticks.

We always make sure to have a Stop Loss order on our trades, to ensure that we never take a larger loss than planned.

This is absolutely crucial as you never know what may happen in the market, so setting a maximum potential risk on a trade right from the start is an important trading practice. Here we go long buy at Our initial stop is set 5 ticks 1. As you can see, price makes a leg higher and we are able to sell the contract at our Take Profit target for an 8 tick 2 point profit on the trade.

Although novice traders should always be trading the minimum amount of just 1 contract, experienced traders can increase their size substantially if they desire. Many trades in ES can reach their profit targets within just a few minutes, which potentially makes even smaller movements hugely lucrative over the course of the trading day for those traders taking larger positions.

In this case we take a short position that eventually ends up being a losing trade. When we initially enter our trade, we start with the same 5 tick 1. What's important in this example is that we got an opportunity to reduce our risk and take a smaller loss when the trading opportunity wasn't working out.

We don't always get a chance to do this but when the rules allow us to use bring in our stops it greatly reduces the impact to our bottom line that any losses might have and increases our overall reward to risk ratio. After a good run down, we find an opportunity to short the market at Price does make another attempt to the downside but is still 2 ticks short of our Take Profit area at Although we began this trade with a 5 tick stop, we do have an opportunity to minimize our risk.

A huge part of seeing long term results with your trading is to know when you can minimize your risk on a trade. According to the rules we use here at Samurai Trading Academy, in this trading situation we are able to bring in our Stop Loss order 3 ticks, making our maximum potential loss on the trade just 2 ticks.

Basically, we've identified a situation in the market where our trade has become slightly lower probability, so we follow our stop management rules in order to reduce our overall risk while still maintaining a large profit potential on the trade if it does resume the prior move down. In this case we don't have another move to the downside and our Take Profit, so we end up getting stopped out for a 2 tick 0.

Because we had initially "borrowed" our contract for this short in hopes of buying it at a lower price later, we end up taking an overall loss on this trade when we have to buy it back at a higher price. Another important consideration when transitioning into day trading is the commissions and fees you will need to pay to place trades.

There are two primary costs you will need to pay: Your broker will take care of this for you automatically each time you fill a trade order. Since each trade has two parts, one to enter and then one to exit, you will be charged fees for each side of the trade. Most people look at their fees in terms of a "round-trip", where both the entry and the exit fees are lumped together.

As a trader begins to trade with larger size more contracts and has more round-trip trades per month they can usually get greatly discounted commissions from their broker.

Similarly, there are options for reduced exchange fees for larger traders as well, like buying a seat on the exchange itself. Because there are fees involved in taking trades, it's important that we don't just take trades constantly throughout the day without a good reason to do so.

Although the fees are relatively small about trades are worth the same as 1 tick of movement in the market they do add up over time.

E-mini - Wikipedia

Trading is a business like any other, so we want to make sure we are only paying money for something worthwhile, which in our case would be high quality trading opportunities. For obvious reasons, the potential day trader income varies widely. The system traded, the size of their positions, the risk management, and their experience level all come into play.

For the purpose of this example we will take a look at a developing trader using our approach at Samurai Trading Academy. Our goal here at Samurai Trading Academy is to bring traders to a level of consistency where they can make points of profit per week. To do this with consistency requires a few things from a trading approach:. The STA trading approach allows our fully trained traders to reach these goals with remarkable consistency, and that's what trading is really all about.

What Are Emini Futures? Why Trade Emini Futures?

The best traders rarely focus on the short-term by aggressively trying to make hundreds of points in a few days. Rather, the greatest traders are the ones who are able to remain consistently profitable week to week and month after month for an extended period of time. This outcome is what we aim for with our students here at Samurai Trading Academy. If a trader develops consistency, then the possibilities are almost limitless in terms of their potential income as a day trader. Most traders who reach a level of consistency in their trading then increase their number of contracts until they find their ideal psychological comfort zone, where they usually settle for the long-term.

For some traders that might be 5 contracts, for others 10 contracts, and for some it may be hundreds. Let's take a look at some of the long-term day trader income potential at various trading sizes:.

It's important to keep in mind that these would be gross trading profits and that there would still be commissions and fees to be paid.

After reading this article, you should now have a good idea of how we take trades using leverage and margin, and how we can make or lose money on the outcomes of our individual trades. There is a great deal more to trading than this, of course, but this overview should give you an idea of how a day trader makes their money and what is possible by trading in the markets.

The next step in the progression is fully understanding what a person needs to actually begin day trading. In the next article of the Emini Day Trading Series, we will talk about brokers, charting platforms, trading computers, and other steps you will need to take to make your transition into a profitable and consistent trader. How Money is Made as an Emini Day Trader.

What You Need to Start Day Trading. The Path to Becoming a Full Time Trader Building and Refining Your Trading Edge 4 Keys to Breaking Your Trading Plateau Strike While The Iron is Hot The 7 Best Price Action Patterns Trading Expectancy: The Power of an Edge Why You Don't Want to Be a Pattern Day Trader. Futures trading contains substantial risk and is not for every investor.

An investor could potentially lose all or more than the initial investment.

Risk capital is money that can be lost without jeopardizing ones financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading.

Past performance is not necessarily indicative of future results. Facebook Youtube Rss Gplus Linkedin Twitter. How Money is Made as an Emini Day Trader Part Four: What You Need to Start Day Trading STA Trading System STA Training Program STA Training Program Overview STA Training Program FAQ STA Reviews and Testimonials Members Area Login Contact.

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