We can look at some particular examples of how we make money (or occasionally lose money) on our trades now that we understand margin and know that we can trade long or short with equal ease. These are extremely basic examples in terms of execution and trade management, but they should give you a solid concept of how transactions are entered and exited. We’ll also look at the commissions and exchange fees we’ll have to pay to participate in the futures market, as these are part of our day-to-day expenses as day traders.
Example of a Profitable Long
At 1536.75, we’ll go long (purchase). Our first stop is set at 1535.50, which is 5 ticks (1.25 points) lower than our entry, and our Take Profit order is placed at 1538.75, which is 8 ticks above our entry. As you can see, price continues to rise, and we are able to sell the contract at our Take Profit objective for a profit of 8 ticks (2 points) on the transaction.
Let’s pretend we only bought one contract on this trade with $500 in margin from our broker. Each tick is worth $12.50 per contract, as we learned in Part 1 of the Emini Day Trading Series, so if we sell our contract at the higher price and close the deal, we will notice a profit of $100 (8 x $12.50) added to our account (less commissions which we will cover next).
Although inexperienced traders should always trade the smallest amount possible, experienced traders can increase their position size significantly if they so wish. Due to the enormous amount of liquidity in the Emini S&P 500 (ES) futures market, a trader can easily get filled for hundreds of contracts at a time. So, if a professional trader made the identical deal but with ten contracts, their profit would be $100 each contract, for a total profit of $1000 on the trade. Many trades in ES can hit their profit targets in as little as a few minutes, making even tiny changes enormously profitable over the course of the trading day for those placing larger positions.
Example of a Losing Short
In this situation, we take a short position that ends up being a losing trade. We start with the same 5 tick (1.25 point) Stop Loss and 8 tick (2 point) Profit Target as in the previous example when we first begin our trade. What’s crucial in this case is that we were able to lower our risk and suffer a smaller loss when the trading opportunity didn’t pan out. We don’t always have the opportunity to do so, but when the regulations allow it, bringing in our stops lessens the impact of any losses on our bottom line and improves our total reward to risk ratio.
We locate an opportunity to short the market around 1538.75, after a good run down. Price makes another try to the downside, but it is still 2 ticks short of our Take Profit area at 1536.75. Despite the fact that we started this trade with a 5 tick stop, we have a chance to reduce our risk.
We don’t have another downside move and our Take Profit in this situation, so we get stopped out for a 2 tick (0.5 point) loss. We end up suffering an overall loss on this transaction when we have to purchase it back at a higher price because we “borrowed” our contract for this short in the hopes of buying it at a lower price later. If we trade one contract, this loss will deplete our account by $25 (plus commissions).
Commissions and Exchange Fees
Another factor to consider when making the switch to day trading is the commissions and fees you’ll have to pay to execute trades. You’ll have to pay two main expenses: a commission to your broker and a fee to the central exchange for placing your trades. When you place a trade order with your broker, he or she will automatically handle this for you.
You will be charged fees for each side of the deal because each trade has two parts: one to enter and one to exit. Most individuals think of their expenses in terms of a “round-trip,” which includes both the entry and exit fees.
For a rookie trader, these fees are typically around $4 for a round-trip deal with 1 contract in ES, with a split of roughly 50/50 between what goes to your broker for their services and what goes to the central exchange. When a trader starts to trade with greater sizes (more contracts) and more round-trip trades per month, their broker will normally offer them lower commissions. For larger traders, there are further options for decreased exchange fees, such as purchasing a seat on the exchange itself.
Because there are fees associated with trading, it’s critical that we don’t trade consistently throughout the day unless there’s a compelling reason to do so. Despite the fact that the costs are tiny (approximately 3-4 trades are worth the same as 1 tick of market movement), they pile up over time. Trading is a business, just like any other, and we want to make sure we’re paying for something worthwhile, in this instance high-quality trading chances.
To trade Emini futures, how much money do you need?
E-mini futures, particularly the E-mini S&P 500 futures (ES), have the lowest day trading margins, which can be as low as $500 with some brokers. 4 To purchase or sell one E-mini S&P 500 contract, the trader simply requires $500 in their account (plus room for market volatility).
Is it possible to make a life trading e-minis?
Assume that Frances the futures trader has $5,000 in monthly expenses to illustrate the link between resources and aspirations. She plans to make money by trading the ever-popular E-mini S&P 500. In reality, there are various tactics that will provide her a chance to make a life trading E-mini futures:
- Scalping: Scalping tactics benefit by performing a large number of deals in a short period of time. Frances will need to perform 500 transactions (25 per day) to make $5,000 in profit, assuming 20 trading days per month, a 30% success rate, and a $50/$150 risk/reward ratio.
- Day trading entails making one or two deals per day. This usually means taking a position early in the session and closing it out before the end of the trading day. Frances will need to perform 42 transactions (two per day) to make $5,000 in profit, assuming 20 trading days per month, a 40% success rate, and a $200/$600 risk/reward ratio.
- Swing trading: Swing trading is a multisession approach that typically lasts 2 to 6 days. To swing trade, overnight margin requirements must be met, increasing the amount of risk capital required. Frances will need to perform six trades (1-2 per week) to reach $5,000 in profit, assuming 20 trading days per month, a 60% success rate, and a $500/$1500 risk/reward ratio.
These strategy frameworks indicate that it is theoretically conceivable to make a living trading E-mini futures, even when commissions and slippage are taken into account. Long-term profitability is possible with a high success rate and a favorable risk-reward scenario.
It’s crucial to remember, though, that each technique has its own set of advantages and downsides. So, while it is technically feasible to make a living trading E-mini futures by scalping or swing trading the E-mini S&Ps, there are other factors to consider. Trade-related efficiencies, margin needs, and market state are among them. Finally, it is up to you, the trader, to decide what is the best course of action for you.
Is it possible to make a lot of money by trading futures?
Agricultural commodities are covered by futures contracts, which rise and fall in price as supply and demand for commodities like corn, steel, cotton, and oil change. If you monitor trends, cut your losses, and keep track of your expenses, you can make money trading futures.
How much does trading E-mini cost?
The answer to this question is contingent on the futures broker you select. And there are three alternative dollar amounts to consider:
- Intraday Initial Margin: The amount of money you’ll need in your account to place an Emini day trade. Depending on your broker and current market volatility, it might range from $10,000 to $17,000.
- Overnight Initial Margin: The amount of money you’ll need in your account to conduct an Emini trade overnight or after hours. This can be anywhere from $15,000 to $25,000, depending on your broker and market volatility.
- Account Minimum: The minimum deposit required to create a futures trading account. Depending on your broker, anywhere from $1 to $10,000.
When most traders first start out, they want to know how much money they need to start day trading. Although the ‘Intraday Initial Margin’ may be as little as $10,000, the real minimum is the amount you’ll need to withdraw before becoming consistently successful.
However, rather than jumping right in and opening a day trading futures account, you should first do some paper trading or practice trading on a simulator account.
What is the cost of an E-mini contract?
The contract’s value is equal to $50 times the value of the S&P 500 index. Most traders are concerned with the minimal price fluctuation and tick value, as these are the factors that decide whether the contract will benefit or lose money. The E-mini is traded in 0.25 point increments, with each increment equating to $12.50 on a single contract.
What are E-mini micro futures?
What exactly are they? Micro E-mini Futures are miniature copies of the CME Group’s popular E-mini stock index futures contracts, measuring barely a tenth of the size. Because traditional E-minis had grown too expensive for many traders, the CME Group introduced them to allow them access to the liquid futures market. The smaller Micro contracts also give traders more freedom and allow them to control their risks more precisely.
Is it possible to trade futures on Tastyworks?
Tastyworks currently offers trading in equities and options listed on U.S. exchanges, cryptocurrencies, Small Exchange futures products, CME futures, including micro e-mini futures, and futures options.
Can you make a living trading futures?
From 6:00 p.m. EST on Sunday to 5:00 p.m. EST on Friday, futures markets are open nearly 24 hours a day, six days a week. Futures traders have more time to trade than stock and ETF traders, who only have a 6.5-hour trading session 5 days a week. Futures traders now have more trading flexibility and the ability to manage their positions at practically any time of day.
E-mini and Micro E-mini futures allow equities index traders to trade in the same markets as Wall Street both before and after the stock market’s relatively short trading period. Index traders can take advantage of events like earnings releases that occur outside of normal stock market trading hours more successfully.