Day Trading Futures | The Ultimate Guide

Day trading futures is a lot like equities. Technicals. Fundamentals. To trade like a professional, you need to know ​and understand the basics.

The difference however, is when we examine the underlying.

Stock prices move because of corporate profits and investor sentiment.

Futures prices not so much, or at least not only.

Natural disasters. Economic sanctions. Political instability. 

​Because underlying assets are commodities and even live animals, understanding the world on global scale is essential to mastering the futures market.

In this Day Trading Futures guide, we’ll breakdown everything you need to know about how to trade and excel in the futures market.

Day Trading Futures

Futures trading involves buying and selling futures contracts. A type of financial derivative, futures allow you to buy or sell an underlying asset at a future date based on a price agreed upon today.

For example, if you buy West Texas Intermediate (WTI) crude oil futures at a $55 with a three month expiration, regardless of the price movement of the underlying, when the contract settles you pay $55.

​Keep in mind though, futures can be cash settled or physical settled.

​Cash settled means the losing counterparty pays the net-difference at expiration.

For example, if you buy WTI at $55 and in three months the price is $60, the seller will pay you $5 per contract.

For physical settlement, you actually take ownership of the underlying asset.

If you buy WTI at $55, you’ll receive one drum of oil at expiration.

Futures contracts are popular because they’re used by many players: farmers, corporations, hedgers, speculators.

And because of this, they also offer plenty of profitable opportunities for savvy traders.

Futures Trading Hours

Like many other exchange traded products, futures trading operates on a weekday business schedule.

However, because of global time zone difference in Europe and Asia, markets open on Sunday at 6:00 p.m. eastern time (ET) and close on Friday at 5:00 p.m. ET.

The schedule applies to equity index, agriculture, energy, interest rate, metals, real estate and foreign exchange futures.

Weather futures on the other hand, trade from Sunday-Friday 7:00 p.m. to 6:45 p.m. ET.

​Day Trading Futures Strategies

Depending on the instrument, there are many day trading strategies and swing trading strategies available for well-informed futures traders.

Let’s run through a few.

​Trading Index Futures

If you follow the markets, I’m sure you notice the major indices have an implied open each morning.

​What this means is: traders are buying and selling futures based on where they think the index will head that day.

​The strategy is: buy futures if you believe the index will rise and sell futures if you believe the index will fall.

The trade is purely a momentum play, so your analysis will follow a technical perspective. Focus on abnormal price and volume action and analyze key sentiment indicators.

The best part about the trade is zero upfront costs. Your only outflow is the margin requirement to collateralize the position.

Trading Energy Futures

When trading oil futures, you need a different approach.

Prices are a function of supply and demand as well as geopolitical politics.

Because many of the Gulf Nations (Middle East) control the supply of oil – wars, political instability and economic sanctions have a significant effect on the underlying price.

​As well, OPEC operates as an oil cartel where they intentionally manage the price of oil.

​Price fixing is illegal in the United States, but the rules don’t apply in foreign nations.

Your first play is to analyze economic data. China is a large consumer of oil and its slowing economy is correlated with the declining trend in oil prices.

Follow China’s economy and you can predict the next move for oil.

Second is rig count. Changes in drilling foreshadows future supply. When rig counts are rising, new supply will hit the market and sink the oil price.

Last is the newswire. Any hint of economic sanctions or problems at major production facilities will boost the oil price.

Just a few weeks ago, oil increased by 2.5% after the US imposed economic sanctions on Venezuela.

Trading Interest Rate Futures

Interest rate futures are some of the most popular contracts available. Because of their high liquidity, they make a great instrument for day trading.

But remember, you have to approach from an opposite perspective.

Since interest rate futures use bonds as the underlying asset, prices move in the opposite direction of interest rates.

For example, if you’re looking to trade central bank policy, you would use the 2-year Treasury as the underlying asset.

Since bond prices and rates move in the opposite direction, rising rates will decrease the Treasury price and decrease the value of your position.

Conversely, falling rates will increase the value of the Treasury and increase the value of your positon.

​Now for strategy.

When trading central bank policy, focus on rhetoric from Federal Reserve officials as well as economic data.

Inflation is key.

Falling unemployment is a major indicator but rising inflation is most significant.

When economic data shows rising PMI’s and CPI’s, it tells you inflation is starting to pick up.

Another signal is wage growth. When the economy is at full employment and wages are rising, interest rate increase are on the horizon.

As well, pay attention to GDP growth and changes in both the money supply and commodity prices.

When rising, each foreshadow rising rates which will increase in the value of a short futures contract.

​Futures Trading Systems

Futures trading systems are key to perfecting a winning strategy.

Like a quant analyst, trading systems automate the process by gathering and extrapolating statistical data to predict profitable entry and exit points for a trade.

By using a system, you employ a systematic approach to futures trading which allows you to avoid the pitfalls of emotion and mistiming winning trades.

The key to a successful system though, is back-testing.

When you take historical data and program the system to implement its strategy – you get clear results of how successful it can be.

This is where Strike Securities comes in.

As a registered broker with the Commodifies Futures Trading Commissions (CFTC) it develops a plethora of trading systems trusted by professional futures traders.

Even for accounts with less than $10,000, three-month returns have ranged roughly 4% to 55%.

If you’re interested in taking an algorithmic approach to trading, give Striker Trading Systems a good look.

​Popular Futures for Day Trading

Day Trading Oil Futures

​​​​As mentioned, WTI is a popular contract. The exchange name is NYMEX WTI Light Sweet Crude Oil.

The contract trades nearly 1.2 million times per day and each contract consist of 1000 barrels of underlying oil.

While WTI has its West Texas roots, the commodity is actually priced out of Cushing, Oklahoma.

Day Trading S&P 500 E-mini Futures

The interesting thing about S&P 500 E-mini Futures is contracts are only one-fifth the size of a conventional S&P 500 futures contract and trade based on monthly expirations.

The contract allows you to track the underlying performance of the S&P 500 where you can hedge or make speculative bets on its future movement.

Day Trading Bond Futures

A popular contract is the 10-Year Treasury Note.

As mentioned, bond prices move inversely with interest rate so don’t get confused. The contract also has monthly expiration dates and is highly liquid as well.

Unlike the 2-year note, movement in the 10-year is a function of long-term economic growth rather than short-term central bank policy.

If you have a good read on the economy and the future direction of long-term GDP – this is the instrument for you.

Day Trading Grain Futures

​​​​When dealing with Grain Futures, you have plenty of options to choose from. Whether it’s wheat, corn, soybean, oats, or rice – there is a contract out there for everyone.

What makes grain futures so unique is that their price is greatly affected by changes in weather.

Natural disasters such as hurricanes and floods can wipe out supply and send the futures price rising.

As well, mass consumption plays an important role.

The more a product is used as an input of production, the higher the demand and thus the higher the futures price.

​Futures Trading Platforms and Simulators

ProRealTime Trading Software

​​​​If it’s access to high quality software – including market alerts and trend detection – ProRealTime has you covered.

The well-known trading platform was named one of 2019s’ best.

It includes advance charting tools as well as access to an experienced team of financial experts, engineers and customer support representatives.

Some benefits include:

  • ​Over 100 charting, scanning and trend detection tools
  • ​4 order book and trade display modes
  • ​Direct connectivity to exchanges
  • ​Ultra-low latency (fast execution)
  • Automartically back test strategies before putting them to work
  • Detailed trading reports, real-time news and multi-monitor functional
  • Over 50 self-help videos

The best part about ProRealTime is it offers both real and simulated trading.

You can get comfortable with the product and perfect your strategy before diving in.

​eSignal

​​​​With a 30-risk free trial, eSignal provides streaming real-time data and advanced charting tools that can customize to your specific strategy. 

With an Elite subscription you get:

  • ​100s of technical indicators
  • ​Advanced Fibonacci and pitchfork drawing tools
  • ​Access to Market Screener Plus
  • Back-testing strategies
  • One year of intra-day historical data
  • ​Volume delta to analyze volume trends

Sierra Chart

Sierra Chart is a professional trading platform that supports both live, simulated and automated trading.

The platform has real-time access to all major futures exchanges such as the New York Mercantile Exchange (NYMEX) and the Chicago Mercantile Exchange (CME).

With the platform, you can create your own customizable studies, indicators, trading systems and also use its excel add-in to export any data to a spreadsheet.

​Popular Futures Brokerages

Interactive Brokers

Opening a trading account with Interactive Brokers offers both reliable service and competitive pricing.

Sporting futures commissions almost 64% lower than the competition, Interactive Brokers offers access to agriculture, currency, energy, fixed income, metals, volatility as well as equity index futures.

For comparison, Interactive Brokers offers an 85 cent commission on S&P 500 E-Mini futures, which is 65 cents less than its next closest competitor.

E*TRADE

​​​​E*TRADE is another popular brokerage that charges $1.50 commission per futures contract (plus other exchange fees)

Some benefits include:

  • ​Eligable for brokerage and IRA accounts
  • ​Trade futures listed on the CME, ICE US and CFE
  • ​Trade CME Bitcoin futures
  • Support and education from licensed futures specialists
  • ​Able to trade futures after hours

The great thing about E*TRADE is you’re not subject to the pattern day trader rule, so small accounts are possible. So it is kind of a pattern day trader ​workaround.

Second, their professional charting tools are functional on desktop, laptop and mobile and come with over 100+ technical analysis strategies and studies.

thinkorswin with TD Ameritrade

​​​​High on the list of reliable brokers, the thinkorswim platform provides not only quality execution, but also education and trading advice to help you become a better futures trader.

The platform also includes real-time data and access to over 400 technical analysis charting tools and studies as well as eight Fibonacci retracement tools.

The platform is also functional on desktop, laptop and mobile.

The best part about TD Ameritrade, is the trading simulator.

Before risking any real money, you can open a virtual trading account and practice with $100,000.

You can also play with margin features to test out a leveraged strategy as well.

​See also: What is buying on margin

​Futures Clearing Houses

​Without peace of mind, what’s the point?

The role of a clearing house is to ensure trades settle within the guidelines of a contract and that buyers and sellers are confident in the security of the exchange.

As well, clearing houses often act as a custodian where they safeguard your assets and protect against fraud.

​Dorman Trading

For over 50 years, Dorman Trading has been doing just that.

The multi-functional firm provides both futures traders and brokerage firms with professional service and support.

Dorman serves:

  • ​Individuals
  • ​Professionals
  • ​Institutions
  • CTA funds
  • Algorithmic traders

The company started out in 1956 – executing transactions for floor traders at the Chicago Board of Trade.

Fast forward to today.

Dorman ensures smooth futures transactions by employing its core principles of stability, trust, reliability and transparency.

​RJ O’Brien

RJ O’Brien is another clearing house offering exceptional service. Founded in 1914, the company began serving the US futures market before expanding across the globe.

What can RJ O’Brien offer?

  • ​Straight-through processing
  • ​Real-time reporting
  • ​Customized support
  • State of the art back and middle office systems
  • Daily account, equity and trade confirmation information

​More importantly, RJ O’Brien is the oldest and largest futures clearing house in the United States, so it’s a name people know and trust.

​Wedbush

Another exceptional clearing house is Wedbush.

The company provides execution, clearing and custodial safe-keeping for financial intermediaries like: full service and independent broker-dealers, advisors, underwriting firms, professional traders, market makers and proprietary trading broker-dealers.

With over 40 years’ experience, the firm’s strong reputation fostered trustworthy partnerships with a bevy of individual and institutional clients.

​Futures Trading Books

While nothing educates you like trading in your own account, continuous learning is essential to take your trading game to the next level.

And guess what?

We know books that can help you along the way.

A Complete Guide to the Futures Market

Technical Analysis, Trading Systems, Fundamental Analysis, Options, Spreads and Trading Principles

Published back in 1984, this classic Jack D. Schwager book has stood the test of time. As futures markets continue to evolve, traders still use Jack’s writings as a refresher.

So what’s covered?

  • ​Technical indicators, chart analysis and trading systems
  • ​Market models
  • ​Guides for developing and testing strategies
  • ​Separating market myths from reality

The book has you covered, from beginner to advanced. It details key trading techniques while proving hundreds of practical examples.

A Complete Guide to the Futures Market is an essential read for anyone looking to climb the professional ranks.

Following the Trend

Diversified Managed Futures Trading

Written by Andreas F. Clenow, Following the Trend takes you into the world of professional Commodity Trading Advisors (CTA’s).

A former hedge fund manager, Clenow dissects the pitfalls many futures traders make as well as outlining his proprietary trend-following strategy.

You’ll learn to trade futures on:

  • ​Equity indexes
  • ​T-Bills
  • ​Currencies
  • Precious metals
  • Livestock

The goal of the book is to provide a deep understanding of what it’s like to trade as a professional as well as how to spot and exploit profitable opportunities.

Trading Commodities and Financial Futures

A Step-by-Step Guide to Mastering the Markets:

With over 30 years’ experience, author George Kleinman provides an inside look into his trend-based techniques for exploiting the futures market.

Tailored for traders at the beginner to intermediate level, Trading Commodities and Financial Futures, takes you in-depth on topics such as market psychology, advanced trading techniques and the rise of high-frequency trading.

Some topics include:

  • ​Why winning commodity traders win
  • ​All the fundamentals in plain English
  • ​Mastering the most valuable technical analysis tools
  • ​25 indispensable trading secrets of the pros

​Day Trading Futures for a Living​

Because futures are leveraged investments, you can buy and sell futures contracts without paying anything upfront (outside of margin requirements). But one major question remains:

​Day trading futures; is that possible?

In a word – yes.

​Just like any other form of day trading, trading futures requires keen instincts and the ability to analyze the pulse of the market.

​The benefit of day trading futures versus stocks is you only need a little capital to get started.

A second factor is volume.

To day trade an instrument you need significant liquidity.

No doubt, futures fit the bill and because of this there are plenty of profitable entry and exit opportunities.

Another unique factor is futures contracts are always net-zero.

What this means is: there are always an equal number of longs and shorts in the market – unlike stocks.

Because of this, many participants earn less than the average return but don’t care because they use the contracts as hedges or for risk-reduction.

This is where you come in.

By taking the other side of the trade, you can capture the excess premium for assuming that risk.

To that point, there are also plenty of arbitrage opportunities in the futures market.

Since carry costs increase the price of a futures contract and carry benefits decrease the price of a futures contract – you can exploit imbalances when they occur.

Natural disasters, political issues and other external factors that happen quite frequently create supply and demand imbalances that allow you capture alpha more often than traditional equities.

Last is trend-following. Unlike stocks, futures markets are less developed than equity markets. Because of this, trends are easier to spot and exploit – which makes it easier to earn excess returns.

​Options vs. Futures

​Day trading options and futures have many similarities:

  • ​Both are standardized and traded on exchanges
  • ​Both are guaranteed by a clearing house (little default risk)
  • ​Both mark-to-market each day
  • Both are heavily regulated
  • Both sell on public exchanges so trading data is available

Conversely, the difference between futures and options relates to how the contracts are structured and their risk exposure.

For starters, futures have zero upfront costs (outside of margin requirements) as payments only occur at expiration.

With options, you pay the upfront premium when you buy and you receive the upfront premium when you sell.

Second, the value of a futures contract moves 1:1 with the value of the underlying.

While carry costs and benefits play a role, during the life of the contract, the value of the underlying is completely reflected in the futures price.

Conversely, option values are affected by many factors: delta, gamma, theta, Vega and rho.​

Changes in the value of these option ‘Greeks’ can increase or decrease the value of an option regardless of the movement in the underlying.

Third is limited liability. When you buy or sell a futures contract, you are obligated to buy or sell the underlying (or cash settle) at expiration.

With options, you only have liability exposure when you sell an option. If you buy one, you’ve already paid the premium.

You can simply let the option expire without any future outflows required.

Last is downside risk. When you buy futures, you have unlimited upside if the underlying rises, but you also have a ton of downside if the underlying declines.

For example, if you buy a contract for $50 and the underlying goes to zero, you’re required to pay $50 for it at expiration.

For options, when you buy, there is no downside risk. You pay the upfront premium and that’s your maximum loss. Regardless of the movement of the underlying, you can’t lose anymore.

See also: Day Trading Options: The Complete Guide