Getting Started

Every year thousands of new traders enter the markets.  It's a big step for most people as typically they have very little prior experience with day trading.  Some have just been hobbyist traders in the past, while others have only recently been introduced to the markets but felt an instant connection that made them eager to learn how to start day trading.

It's likely that their previous education and career have done little to prepare them for their new endeavor so they understandably are unsure of exactly where to start.  As people begin to seriously consider what it will take to become a day trader they often have some similar questions that come up:

How do you find a good broker?  What trading platform should I use?

How much money do I actually need to get started as a day trader?

Should I join a training program and/or purchase a trading system?

These are all important considerations that someone needs to deal with before they can make their transition into day trading.  In this article, Part 4 of the Emini Day Trading Series, we will answer these questions for the aspiring trader so they can be better prepared before entering the trading arena.

Understand Your Role as a Trader and What Lies Ahead

Without a doubt, the most important thing that a trader needs before they start day trading is the right mental mindset.  This is a combination of realistic expectations and confidence in your trading approach.

It's vital that an aspiring trader fully understands the process of becoming  day trader.  Trading is a skill like any other, which means it takes time, effort and persistence to develop.  People often ask exactly how long it will take for them to make the transition to consistent, professional day trading but the honest truth is that there is no answer that fits everyone.  Each person has a different learning curve depending on their focus level, determination, the kind of training/coaching they undertake, and their own unique psychological profile.

Some traders are able to very quickly transition from Simulated trading to Live trading and can begin to trade effectively within a matter of weeks, while others may take months before they feel confident enough to risk real money in the markets.  The bottom line is that both of these are completely acceptable progressions for a trader.  What's important is that you take the time you need to develop your skills and build your confidence before you start putting real money on the line.

This is not a race with other traders - it's only about your own long term development and results.  Trading is a skill you will have for the rest of your life, so don't rush yourself or put big demands on your performance right from the start.  Take your time, build confidence in your skills and trading edge, and consistency and profitability will come.

Find a Reputable Broker

One of the great things about the futures market is that there are quite a few reputable brokers out there.  Unlike some markets, such as Forex, futures is highly regulated and all trades go through a central exchange which means brokers are more accountable for their dealings with clients.

When it comes to brokers your best bet is almost always to ask other traders who they're using and if they're pleased with the broker's performance.  Traders are rarely afraid to express their displeasure with a broker they've had issues with in the past so you can usually get a very honest assessment of a broker after a quick search.  There are a number of trading forums out there that have entire sections dedicated to broker questions and reviews, so that would be a good place to start.  Do a bit of research, find a company that seems to fit your needs, and then go ask other traders about their experiences with that particular broker.  You'll quickly find out all the good and bad there is to know.

If you don't know many other traders or where to start we do have a couple suggestions that many people at STA use.  While we don't endorse any particular company we've heard a lot of positive things from other traders about NinjaTrader Brokerage (previously Mirus Futures), Interactive Brokers and Global Futures (for Canadians).  NinjaTrader Brokerage is quite popular with newer traders as you can open an account with as little as $1,000 (the Pattern Day Trader rule does not apply to futures) and actively trade thanks to the generous leverage and margin requirements.  Some brokers, like Interactive Brokers, require a larger initial account size to get started ($10,000 minimum) but also let you trade a wide range of instruments including futures, Forex, and stocks.

At Samurai Trading Academy we generally suggest opening a larger account to start if possible (at least $5,000 - $10,000) to keep better control of your risk per trade but there are advantages of the low barriers to entry with brokers like NinjaTrader Brokerage or Global Futures can be very helpful to the developing trader.

Choose Your Trading Platform

When it comes to trading futures, you have a number of options for your charting platform.  The most popular these days are NinjaTrader and TradeStation, though Sierra Chart, MultiCharts, and some other charting packages are sometimes used by retail traders as well.  We feel the best options out there in terms of support, features, and indicator availability are NinjaTrader and TradeStation so we'll focus on those packages and leave a more thorough analysis of additional trading platforms for a future article.

Most platforms are quite similar with only small differences in features and ease of use but the costs can differ drastically.  You should look to treat your trading like any other business, which means you should always be keeping a close eye on your various costs.  If you are a new trader who is just getting started in the futures market the importance of keeping your costs low can't be overstated.

NinjaTrader

This platform one once the young upstart when they first appeared in 2005 but in recent years has become firmly established amongst many professional traders.  NinjaTrader is a very powerful platform offering numerous customisation options while still being user-friendly and it continues to improve.  It also has a built in Chart Trader function which allows you to easily place your orders directly on the chart itself rather than through an order matrix which makes trade management a breeze as stops and targets can quickly be adjusted with a couple of mouse clicks.

Another great thing about NinjaTrader is that it's free for those who only want to use the end-of-day charting and the excellent simulator function.  The simulator in NinjaTrader is called Market Replay and it's fantastic as it allows traders to run prior days in real time with high quality data, almost as if they were trading live.  This is extremely useful for those who are just starting to develop their trading skills as it allows them to get a great deal of trading experience on their own schedule, and all for free.

If you decide to go live and trade with your broker directly through your NinjaTrader charts then there is a cost involved but it's quite reasonable compared to many of the other options out there.  You can buy a lifetime license for a one-time fee but most new traders will likely prefer the option of leasing the software in their first few months to test drive the platform:

• Lease from $50-60 per month or
• Buy for one-time fee of $995 (there are no future monthly costs if you choose this option)

TradeStation

TradeStation is one of the old dogs out there as its been around since 1991.  For a while it was one of the few options for retail traders but over time more and more competitors have entered the market and made up ground on the former leaders.  TradeStation is still a powerful and full-featured package that some traders prefer, but it's also very resource heavy and not as user-friendly as it could be.  While other platforms continue to improve, TradeStation often seems content to just stay where they are which has allowed others to catch up and in many ways surpass them.

The other issue with TradeStation is the high monthly costs.  If you use TradeStation as your broker (we don't recommend this due to some of the feedback we've received from other traders) they will give you free access to their platform as long as you meet minimum requirements.  If you just want to use it for charting and trade through another broker then the cost per month is substantial:

• Lease from $250 per month plus data feed costs.  Limited to charting and simulated trading.
• Around $20 for data feed but free platform use if using TradeStation as broker and taking 10 round-trip trades per month.  If you don't meet these requirements the cost is at least $100 plus fees per month.

Requirements for Your Trading Computer

There's a huge range of possibilities for trading computers depending on what you need the machine to do.  Some traders use their computers to run highly detailed simulations or introduce resource heavy algorithms and robots to provide them with analysis of the market.  Others simply believe that the more screens they have the more quality trading opportunities they can find (this is usually far from the truth), and for obvious reasons running 10 screens at once requires a powerful machine and multiple video cards for outputs.

Here at Samurai Trading Academy we focus on a single market with a single chart.  We use only a few indicators that are not overly complex so our charting requires very little in terms of resources from a trading computer.  Not only does this approach improve our results by avoiding unnecessary complexity, it also provides us a great deal of flexibility when it comes to the computers we use for trading.  We are able to use moderately powerful PCs and laptops (or even light-weight and thin ultrabooks) to do our trading, which allows us to trade effectively from anywhere in the world as long as we have a stable internet connection.  Better than buying a $5,000 "trading computer" which is complete overkill for the task and only sits in your office, isn't it?

Minimum Specifications

• Processor:  Intel i3 or AMD equivalent - The newer i3, i5, and i7 series of processors (mobile or desktop version) are all more than capable of handling the day trading we do at STA.
• RAM:  8GB - Your OS and other programs will likely run better with more RAM but with just your charting package open all you will need is 8GB.
• OS:  Windows 10 or 11
  

Recommended Specifications

• Processor:  Intel i7 - The i7 has hyper-threading which some trading platforms don't take full advantage of yet but likely will in the future.  An i7 is a good idea if you do multi-tasking and for future-proofing.
• RAM:  8GB+ - More than 8GB is nice but unnecessary unless you're running detailed simulations.  Most mid-range PCs and many laptops come with 8GB of RAM these days.
• OS:  Windows 10 or 11
  

The Costs to Start Day Trading

The Barriers to Entry

People commonly get in touch with us to ask the same thing - how much does it really cost to get started day trading?  Many of these people have little experience in the markets and have decided they want to learn more but aren't really sure about everything that's involved.  For example, many people think that to get started day trading you need a minimum of $25,000 for your account but this isn't the case.  This regulation, called the Pattern Day Trader Rule, only applies to stock traders but not to futures traders.  In futures you can open an account and start trading a single contract with an account only a fraction of the size.

When it comes down to it, starting a day trading business actually has much lower costs than almost any other business out there.  Opening a store has costs in rent, employees, furnishings, licenses, and much more.  Entering a franchise agreement often requires tens of thousands of dollars up front, if not hundreds of thousands.  These lower barriers to entry for day trading are a bit of double-edged sword, as the ease of access means some market participants enter trading without much in the way of preparation.  However, for those who take the optimal path to day trading success by getting quality training or doing a great deal of self-study and practice before taking on large risks, the entry requirements for day trading futures are a huge advantage.

A Quality Trading Education

Probably the most important consideration is what sort of trading education you will get to accelerate your development.  While it's possible for self-motivated traders to develop into professional day traders entirely on their own, this can often be a lengthy and difficult process.  When using unproven systems there is usually a great deal of trial and error and many mistakes are made along the way (even with robust backtesting and paper traded results) which makes getting started a rocky road for many.  In most cases, the losses that an under-educated trader incurs are far more than what quality trading courses, training, and coaching would have cost them.

The advantages of getting a good trading education are numerous.  A good training program will not only provide you with a proven system that professionals use in the markets every day, but also the ongoing support and training in a live environment that's absolute crucial to your success.  When it comes to trading education and coaching in futures there's a lot of options at a wide variety of price points out there.  Don't be fooled - the price rarely reflects the quality of the actual service.

You don't want a program that just throws a few hours of videos your way and then sends you out on your own.  Regular feedback, advice, and personal support are crucial to trader development.  What's important is that you find a trading approach and educators that you are comfortable with because quality trading education is a very personal thing.  Everyone has their own way of learning, and their own pace, so be sure that you choose a program that has you in direct contact with a mentor at all times.  This personal contact is an absolute necessity if you want to truly accelerate your learning curve.

Costs Breakdown to Start Day Trading

Something to keep in mind about the cost breakdown below is that not all of these costs need to come at once.  As you will need some time to undertake your trading education and skill development you should not be trading with real money in the initial phases of your transition into professional day trading.  NinjaTrader is completely free for simulated trading, which means that for the initial weeks/months you will not need to pay anything for your trading platform or open an account with a broker.

Initial Account Capital:  $5,000 - $10,000

Trading Platform:  $180 for 3 month NinjaTrader License

Education and Trading System:  $1,000 - $10,000 (offerings and extent of personal mentoring vary greatly with different educators) or free if taking a self-study approach (though this may be a more time-consuming path)

Emini Day Trading Series Articles

Part 1:  What Are Emini S&P 500 Futures?

Part 2:  8 Advantages of Trading Emini S&P 500 Futures

Part 3:  How Money is Made an an Emini Day Trader

Part 4:  What You Need to Start Day Trading

The post Emini Day Trading Series: What You Need to Start Day Trading appeared first on Samurai Trading Academy.

Introduction

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.

Account Size, Leverage, and Margin

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.

What the high leverage available in futures allows us to do is to trade intra-day (meaning that no trades remain open at the end each trading day) with as little as $500 per contract on margin.  Essentially margin is what your broker uses as collateral for you to take control of a futures contract.  Theoretically, a trader could trade as many as 5 contracts ($500 margin each) at once with a $2,500 account, though this would introduce a trader to an enormous amount of risk.  In order to use leverage to our advantage we need to understand our total risk on any given trade and plan our positions accordingly.

At Samurai Trading Academy we recommend an account size of at least $5,000 for a new day trader who is just getting their start in the live market.  Using our trading approach we often maintain an average loss of about 4 ticks (or 1 point), which at $12.50 per tick for 1 contract comes out to $50 of average risk.  This means that with an account size of $5,000 a trader is only risking about 1% of their account on any one trade.  This is ideal, especially for a newer trader, as it allows occasional losses without decimating the health of our overall account.

More experienced traders may increase their risk beyond these levels but very rarely would a trader want to increase their total risk of loss on any given trade beyond 2%.  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.

Trading Long (Buy) and Short (Sell)

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.  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.  Doing this allows us to profit from the difference between the original short price where we borrowed the contract and the cheaper  price where we eventually bought the contract.  We return the contract to the broker at the original borrowing price and get to profit from the difference on the sale.

While it's useful to understand the difference between buying or selling a contract, it's important to realize that in the futures market it makes little difference in terms of our activities as day traders.  During actual trading, both trade types act similarly when executed and there is no difference in trading costs between them.

Profits and Losses

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.

Example of a Profitable Long

In this example we will take a look at a basic trade we do here at Samurai Trading Academy.  In this case we enter the trade 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 1536.75.  Our initial stop is set 5 ticks (1.25 points) lower at 1535.50 and our Take Profit order is set 8 ticks above our entry at 1538.75.  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.

Let's assume we only bought 1 contract on this trade using $500 in margin with our broker as collateral.  As we already know from Part 1 of the Emini Day Trading Series, each tick is worth $12.50 per contract, so once we sell our contract at the higher price and close the trade we will see a profit of $100 (8 x $12.50) added to our account (less commissions which we will cover next).

Although novice traders should always be trading the minimum amount of just 1 contract, experienced traders can increase their size substantially if they desire.  In the Emini S&P 500 (ES) futures market, a trader can easily get filled for even hundreds of contracts at a time due to the large amount of liquidity in the market.  So assuming that a professional trader took the same trade but with 10 contracts, their profit would be $100 for each contract, so $1000 on the trade.  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.

Example of a Losing Short

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 (1.25 points) Stop Loss and 8 tick (2 points) Profit Target as in the previous example.  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 1538.75.  Price does make another attempt to the downside but is still 2 ticks short of our Take Profit area at 1536.75.  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 by 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 to where we've set our Take Profit so we end up getting stopped out for a 2 tick (0.5 point) loss.  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.  If trading with one contract, this loss will remove $25 (plus commissions) from our account.

Commissions and Exchange Fees

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: a commission to your broker, and a fee to the central exchange to place your trades.  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.

Typically these fees for a new trader are around $4 for a round-trip trade with 1 contract in ES.  The split is usually near 50/50 in terms of what goes to your broker for the service they've provided, and what goes to the central exchange.  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 3-4 trades are worth the same as 1 tick of movement in the market) they do add up over time.  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.

Potential Day Trader Income

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 10-15 points of profit per week.

To do this with consistency requires a few things from a trading approach:

1. 1. A tested, winning trading strategy that is adaptable to the market and works in a variety of conditions
   2. A system that has more winning trades than losing trades
   3. A system that has bigger wins than losses (we aim for average wins twice as large as our average losses)

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.  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. These costs would vary week to week depending on how active the market has been but as our strategy doesn't have us entering and exiting the market repeatedly its allows us to keep these costs of trading relatively low.

Conclusion

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.

Emini Day Trading Series

Part 1:  What Are Emini S&P 500 Futures?

Part 2:  8 Advantages of Trading Emini S&P 500 Futures

Part 3:  How Money is Made as an Emini Day Trader

Part 4:  What You Need to Start Day Trading

The post Emini Day Trading Series: How Money is Made as an Emini Day Trader appeared first on Samurai Trading Academy.

The Many Advantages of Day Trading Eminis

There's a huge number of markets out there, so why is Emini day trading so compelling to so many traders?  These traders have usually been involved in equities, bonds, forex, and any number of other markets over their trading careers but many call the futures market home when it comes to their day trading.  In this article, we'll provide a number of reasons why trading Eminis can be a huge advantage for the novice and veteran trader alike.  These advantages are a big part of why we prefer to focus on trading Emini S&P 500 futures here at Samurai Trading Academy.

Emini Trading Advantage 1:  A High Liquidity, Efficient, and Volatile Market

The Emini S&P 500 (ES) is the world's most actively traded stock index futures contract with millions of contracts traded every day.  When you consider that each contract is worth $50 times the current value of the S&P 500 index, you can see just how huge a market it is at well over $100 billion per day.

This size and continual activity makes for a high degree of liquidity.  During the normal trading hours the Emini S&P 500 (ES) futures contract maintains a very tight bid-ask spread of just a single tick (or $12.50 per contract).  Since the spread is considered a cost to enter the market, the very low spread of ES is a huge advantage for the active trader.  In the Emini S&P 500 futures market traders can be filled on orders of hundreds of contracts without slippage problems and even at that size large orders can be filled quickly and efficiently.

The ES market is also quite volatile throughout the trading day.  This volatility provides the opportunity for Emini day trading and allows us to find trading setups even in a limited amount of time.  An ES trader can trade as little as an hour or two every morning and still be consistently profitable most days due to the number of high quality trading opportunities.  Here at Samurai Trading Academy we aim for 10-15 points a week from trading the ES morning session alone.

Emini Trading Advantage 2:  The CME Group Is A Regulated Central Exchange

Any trading in Emini S&P 500 (ES) futures is done through the Chicago Mercantile Exchange Group where all trades are recorded in an official time and sales report.  These trades are public and are placed on a first come, first served basis and all trades must follow CME Clearing rules as well as the CFTC and NFA rules.   The ES is a fully electronic market without a trading pit which means no market makers, locals, or floor brokers.  This means that all traders have access to the same Level II market and bid-ask spread.  This provides an equal playing field and allows for extremely quick online order execution.

Compare this to Forex, where various firms control the market and the bid-ask spread.  Even though many Forex brokers advertise a fixed spread, they often reserve the right to widen it at any time.  Even worse, because Forex does not have a central exchange and many trades are done "over the counter" without a central time and sales report there is the risk that a broker may not get your trade filled with the best execution possible.  Some Forex brokers have been known to bet against a trader, front-run their orders, and other nefarious tactics.

Emini Trading Advantage 3:  Emini S&P 500 Futures Is A Very Technical Market

Due to the nature of the participants in the Emini S&P 500 futures market and the quantity of the trading being done, the ES is an excellent market for technical analysis.  There are very few parabolic moves, the depth of the market makes it virtually impossible to manipulate, and trends tend to be smooth and predictable with regular pullbacks.  The same can't be said for most stocks, commodities, and many Forex pairs.

The advantage of the technical nature of ES is that it allows us to focus on the price movement itself rather than indicators, expensive news feeds, or market rumors.  When viewing the price action we can easily identify trends and common patterns in the market and reliably act upon them.

Emini Trading Advantage 4:  A Single Chart and Minimal Prep Time Necessary

The highly technical nature of Emini S&P 500 futures also provides advantages in terms of the amount of market information we need to focus on each day.  With only a single chart on one screen we can trade ES effectively as day traders.  Compare this to the information overload that many stock traders have where they follow 20 or more different charts on multiple screens each day.  Being bombarded by a huge information flow is rarely an advantage - sometimes simple is better!  This setup also gives the ES trader a great deal of flexibility.  All an ES trader needs is a laptop's single screen and they can trade from anywhere in the world as long as they have a reliable internet connection.

The technically-focused Emini S&P 500 day trader doesn't have to do a great deal of research on individual companies or study the fundamentals in exhaustive detail to be ready for the trading day.  Their preparation time outside the trading day can be kept to a minimum which frees the day trader up to focus on the price action and patterns as their guide.  With some practice an ES day trader can generally do their pre-market analysis in only 5-10 minutes and will be fully prepared for the trading day ahead.

Worst Trading Desk Ever

Emini Trading Advantage 5:  Freely Trade Short or Long

There are no restrictions or rules against going short in the Emini S&P 500 futures market.  A trader can sell short an ES contract at any time in hopes of simply buying it back later at a lower price with a profit.  You can do this from day one with your futures broker without any special requirements needed.

To go short in stocks you will require a special account with increased requirements.  Some stocks cannot be shorted or have limited shares available to short which greatly limits your options in some market conditions.

Emini Trading Advantage 6:  Excellent Leverage and Margin Requirements

A trader needs to be careful with using leverage as higher leverage means higher potential risk, but in the in the hands of a trader with proper risk controls it's an excellent tool.  By putting up as little as $500 of intraday margin with a broker an Emini S&P 500 futures day trader is able to buy or sell short a single ES contract (currently valued around $75,000).  The leverage in this scenario is 150:1 which allows fantastic flexibility to the ES trader that other markets don't provide.  We don't advocate this kind of extreme leverage scenario at Samurai Trading Academy but with good risk controls it does allow those who are new to futures trading to enter the market with a much lower financial barrier.

Most traders don't get to enjoy the leverage benefits of Emini S&P 500 futures and have to put up significantly more capital on margin to enter their positions.  Some stocks cannot be traded on margin and those that can require at least 50% margin to take a position.  In the US, Forex trading firms are only allowed to offer a maximum leverage of 50:1 on major currency pairs and 20:1 on minor pairs.  With these requirements it's no surprise that many traders prefer Emini futures.

Emini Trading Advantage 7:  No Pattern Day Trader Rule

A futures day trader can open an account with as little as $2,500.  They can then trade as often or as rarely as they want without further restrictions.  On the other hand, a stock trader who executes 4 or more day trades in 5 business days (provided the number of day trades is more than 6% of the customer's total trading activity over that same period) is considered by the SEC to be a Pattern Day Trader.

What this means is that you are now required to have a minimum or $25,000 of capital in your account at all times and may not fall below this amount.  The Pattern Day Trader Rule  of trading stocks creates a very high barrier to entry so being able to get started day trading futures with only 1/10th that amount is a huge advantage for many.

Emini Trading Advantage 8:  Low Commissions and The Reduced Cost of Doing Business

A new Emini S&P 500 futures trader can get round-trip commissions and fees as low as $4 per contract to start if trading a single contract.  Compared to stocks and Forex this is exceptionally low and unlike a Forex firm which might suddenly increase your spread, the commissions in futures can only get lower.  Once you are trading more contracts on a monthly basis the broker commissions become only a fraction of their initial level and very large traders can even get a seat on the exchange to reduce their fees even more.  The lower commission structure of futures allows a trader to enter and exit the market more often which means that a trader can day trade and scalp with very large size if they choose to.  In most markets this isn't an option for retail traders.

The cost of doing business in futures is also very low due to the leverage and small minimum account balance needed to get started.  For the well prepared novice trader these lower barriers to entry are a huge advantage as they don't have to worry about tying up a large quantity of funds in their new venture.  An experienced trader also finds the high leverage a very useful tool as they are able to manage their trading account risk and free up funds for other uses.

Conclusion - 8 Advantages of Trading Emini S&P 500 Futures

There are a number of other advantages out there to trading Emini futures like tax breaks, diversification benefits, and much more but many of the major ones have been covered here.  You should now have an improved understanding of the benefits that trading Emini S&P 500 futures can give you, especially if you intend to do so as a day trader.  If you are currently an active trader in stocks, Forex, or commodities I hope this article gave you good reasons to more seriously consider entering the arena of futures trading.

In our upcoming articles in the Emini Day Trading Series from Samurai Trading Academy we will look at how money is actually made as an Emini day trader and we will also look at some of the considerations you need to build a successful trading plan that will allow you to reach your trading goals.

Emini Day Trading Series

Part 1:  What Are Emini S&P 500 Futures?

Part 2:  8 Advantages of Trading Emini S&P 500 Futures

Part 3:  How Money is Made as an Emini Day Trader

Part 4:  What You Need to Start Day Trading

The post Emini Day Trading Series: 8 Advantages of Trading Emini S&P 500 Futures appeared first on Samurai Trading Academy.

The futures market provides the basis for the Emini day trading we do here at Samurai Trading Academy.  With that in mind, it's probably best to start with a quick summary of what futures are.  While many people are familiar with stocks, bonds or forex, there are quite a few who don't have much direct experience in futures.  This is somewhat surprising considering they are among the most actively traded markets in the world.

Plainly stated, a futures contract is an agreement between the seller to deliver and for the buyer to take delivery of a commodity at a specified future date.  In some cases this is an actual physical commodity but much of the futures trading that occurs is based on stock price indexes like the S&P 500.   This means we are buying virtual rights to a certain value in the index that we can then sell to someone later at a different price (hopefully at a profit).  In this case the delivery is simply a cash settlement on the difference between the original transaction price and the final price of the index at the termination of the contract.

The price of a futures contract responds to changes in the overall underlying index and the value is recalculated as the stocks that compose the index change in value.  So while a futures contract may be priced slightly higher or lower than the index it is based on, it generally does follow it very closely.

The Introduction of the S&P 500 Futures Contract

In 1982 the Chicago Mercantile Exchange (CME) introduced the S&P 500 futures contract and it quickly became the most actively traded market of its time.  While the Dow Jones Industrial Average only tracks 30 blue chip stocks, the new S&P 500 Index is based on the market capitalization of 500 companies in the U.S. stock market over a variety of market sectors.

In 2012 the S&P sectors that composed the 500 company index included Technology (19.27%), Financials (15.14%), Health Care (12.21%), Energy (11.31%), Consumer Discretionary (11.05%), Consumer Staples (10.85%), Industrials (9.85%), Utilities (3.60%), Materials (3.55%) and Telecom (3.17%).

This diversity made the S&P 500 index much more representative of the overall market's health and increased its popularity as a premier trading market.  By trading S&P 500 Futures you are essentially buying and selling an extremely well diversified portfolio of stocks in a single index futures contract.

Advantages of Trading S&P 500 Futures Vs Individual Stocks

1. Only one chart is needed to trade S&P 500 futures.  Some people may look at multiple time frames but these can easily be scrolled through on a single chart.  Compare this to trading individual stocks where you may be looking at 10, 50 or even hundreds of different charts throughout the trading day.
2. Liquidity is much higher, which minimizes slippage on trades.  Many individual stocks are lightly traded which increases your risk if you can't get filled where you placed your original stop loss order.
3. There are no restrictions on going short (selling).  You can go long (buy) or short (sell) with the S&P 500 Futures contract at any time.  There is also no Alternative Uptick Rule.
4. The brokerage commissions for round-trip trading are usually much lower for the S&P 500 Futures contract.
5. As the S&P 500 Index is very diversified it reduces the risk of sudden adverse moves that are not uncommon in trading individual stocks.  This combined with the slippage problem mentioned above can make trading individual stocks much riskier.
6. You can trade the S&P 500 with very minimal market research, unlike individual stocks which usually require considerable study time for dozens of companies.

The Creation of the Emini S&P 500 (ES) Futures Contract

As the stock market continued to strengthen through the 90's it became increasingly more difficult to trade S&P 500 Futures contracts.  With a value of $500 multiplied by the index it was worth over $500,000 per contract at the time.  That price per contract had simply become too high for many smaller traders to participate.

The CME stepped in on September 9th, 1997 to alleviate this problem with the creation of the Emini S&P 500 (ticker symbol ES) futures contract.  Emini day trading was born and the ES quickly became the most popular equity index futures contract in the world.

As the Emini S&P 500 is only traded electronically (hence the E in Emini) on the CME Globex Exchange it gave an even playing field to many traders compared to the S&P 500 contract which was traded in an Open Outcry trading pit at the Chicago Board of Trade.

The success of the ES futures contract also led to an explosion of additional Emini day trading.  In the coming years numerous contract variations were introduced like the Emini NASDAQ 100 (NQ) and the Emini Russell 2000 (RTY).

Details of the Emini S&P 500 (ES) Futures Contract

Trading Times

The Emini S&P 500 contract trades 23 hours a day from 5:00 PM CST (the CME is based in the Central time zone) until 4:15 PM CST the next day.  Trading is halted for a maintenance period every day between 3:15 PM CST and 3:30 PM CST.  It trades five days a week and is on a quarterly expiration cycle.

While the contract does trade for most of the day, here at Samurai Trading Academy we prefer to focus our Emini day trading on what we consider the part of the trading day which offers the highest quality opportunities. Usually this is from approximately 9:30 EST (we use Eastern Standard Time as we start at the New York Stock Exchange open) until 12-1 EST (New York lunch).

While there can also be many opportunities during the New York afternoon our Emini day trading approach is to maximize the trading potential in the morning session every day and leave the afternoon session entirely optional.  After all, who wants to sit at the screens all day if you don't have to?

Contract Expiration

Futures contracts were originally designed as contractual agreements for the delivery of a commodity at a specified time in the future.  This means that Emini futures contracts expire as well.  Emini S&P 500 (ES) futures contracts expire quarterly on the third Friday of March, June, September and December.  For example, an ES contract due to expire in March, 2020 would be listed as ES 03-20.  A week before expiration the contract rolls over and we would then trade the new contract for June (ES 06-20) for the next three months.

As Emini day traders this rollover doesn't affect us much as we don't hold positions in the market overnight or during the expiration time but we need to know about this feature of the futures market so we remember to take a moment to change over our trading contract every few months.

The Value of an ES Contract

Emini day trading is quite different from trading the larger contracts due to the variations in price movement and tick pricing.  A full-sized S&P 500 Futures contract moves in minimum increments we call ticks where each has a size of 0.10.  There are 10 ticks in every one point of movement you see on the S&P 500 Index.  Each tick is worth $25, which means each full point of movement is equal to $250.

The Emini S&P 500 uses different tick and point values that are well suited for novice and veteran day traders alike.  Ticks in ES are each 0.25, meaning there are 4 ticks for every one point of movement.  Each tick is worth $12.50 in ES, so a full point of movement is equal to $50.  So as you can see the Emini S&P is one fifth the size of a full S&P futures contract.  For those of us involved in Emini day trading this is a huge advantage.

Conclusion - What Are Emini S&P 500 Futures

You should now have a good understanding of what Emini day trading is all about and how Emini futures came to be such active markets for traders.  Here at Samurai Trading Academy the ES is our preferred market due to the liquidity, volatility, and ease of access.  That said, our methods can often be applied to other futures markets and instruments as well.

In future articles in this series we plan on covering a number of topics related to Emini day trading.  We'll discuss the advantages of day trading Eminis compared to other markets, why ES is a great market for novice traders, and we'll also talk about what you need to be able to start day trading yourself.

Emini Day Trading Series Articles

Part 1:  What Are Emini S&P 500 Futures?

Part 2:  8 Advantages of Trading Emini S&P 500 Futures

Part 3:  How Money is Made as an Emini Day Trader

Part 4:  What You Need to Start Day Trading

The post Emini Day Trading Series: What Are Emini S&P 500 Futures? appeared first on Samurai Trading Academy.