The Benefits and Disadvantages of Day Trading on the Futures Markets

Posted on August 13, 2017 By

When someone day trades in the futures market, they buy and sell the contract within a single trading day. These trades can vary in length; some last for a few minutes while others endure for most of the session. It takes significant discipline, experience, and knowledge to successfully day trade futures, and traders shouldn’t start until they’ve carefully considered the benefits and risks.

Advantages

In day trading, each position must close by the end of the day, which means the trader incurs minimal risk. In most cases, a futures contract opens at a different price than where it closed on the previous trading day. Market volatility occurs when a position remains on the books at day’s end.

Someone new to the futures market can learn a lot in a short time by engaging in day trading. These traders usually make several trades a day, as compared to a position trader who may only make one trade in a week. As the old saying goes, practice makes perfect.

Disadvantages

Day trading on the futures market requires strict discipline. It can be quite tempting to over trade or make marginal trades, and commissions can add up quickly. Most day traders are even at year’s end, and they have significant commission bills. Therefore, someone day trading on the futures market would have to achieve a 25-50% return to break even.

The Best Markets for Futures Day Traders

Most who day trade futures work within the E-mini S&P 500, which is a pure play with a margin of approximately $3500. Futures are traded electronically, which makes executions very fast indeed. E-mini Russell and Nasdaq futures are popular among day traders with a focus on stocks. Every market’s characteristics are different, and traders should study them carefully before developing techniques and strategies.

Sometimes, the advantages of day trading outweigh those of long-term investments. Market volatility usually determines which approach is more suitable. Those who want to know more about futures day trading can learn more online here. By carefully considering the pros and cons of day trading on the futures market, a trader can make more informed decisions when buying and selling.

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