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Best Futures Contracts for Day Trading

A day trader can trade both stocks and futures. But the lots that you have to work with are different in each market. The minimum lot size is one futures contract or 100 shares. In this article, we will consider trading futures contracts, although the same strategies can be applied in the stock market, taking into account the mentioned minimum allowable position size.

During the day, traders choose futures as a tool. To carry out during the day trading, a rather large amount is needed, for example, $ 25,000, but for beginners, some $ 5000 is also suitable. Another attractive feature of futures trading is the possible large return on invested funds (as well as their loss), given that to control positions that can bring you big profits in a matter of seconds (like losses), you need a little capital.

Much depends on the futures contract, including the amount of capital. Different contracts have different daily requirements, so depending on the selected futures, you may need different amounts on the account. And, accordingly, vice versa. The more you have, the more choices you have. For our part, we will try to provide all the necessary information about intraday trading so that you can correctly approach the choice of futures.

How to Pick a Futures Contract to Day Trade

To find a suitable futures contract for during the day trading, you need to consider the following: the daily trading volume of this contract, the size of its guarantee collateral (margin), and how well this contract “walks” during the day.

As for volumes, during the day, contracts include those whose daily trading volume is more than 300,000. This ensures that you can buy and sell the contract at the price you want; that is, there will always be another trader who will buy/sell this contract at the price you declared.

According to the CME Leading Products Q2 2017 report of the Chicago Mercantile Exchange, the following futures contracts are the most commonly traded:

  • Eurodollar (GE) – 2,522,642 average daily trading volume (ADTV)
  • Mini contract S&P 500 (ES) – 1 520 914 ADTV
  • 10-year US Treasury Bonds (ZN) – 1,484,841 ADTV
  • Crude oil of the WTI (CL) mark – 1,236,392 ADTV

Based on trading volume data, these futures contracts are favorites of market participants. Thus, traders can only decide on the size of the margin corresponding to their financial capabilities and the direction of movement of any of the listed contracts, consistent with their trading style.

The daily margin requirements for futures contracts vary by broker. Most futures brokers will have the following daily margin requirements for each contract:

  • Eurodollar (GE) – $ 500 for 1 contract
  • Mini contract S&P 500 (ES) – $ 500 for 1 contract
  • 10-year US Treasury Bonds (ZN) – $ 500 per contract
  • WTI Crude Oil (CL) – $ 1,000 per contract

Before you initiate a deal, you need to consider two things: the cost of a futures step and how many points a futures contract usually goes through per day. The following list of futures contracts contains this information:

  • Eurodollar (GE) – 1 point = $ 2500. Average daily price range (ADPR) = 0.02 points.
  • Mini contract S&P 500 (ES) – 1 point = $ 50. ADPR = 36 points.
  • 10-year US Treasury Bonds (ZN) – 1 point = $ 1000. ADPR = 0.74 points.
  • Crude oil brand WTI (CL) – 1 point = $ 1000. ADPR = 1 point.

The volatility data given above is based on the indicators of the Average True Range indicator (14) as of February 25, 2016. The Daily Range, or Daily Range, usually fluctuates, and in some days and weeks, volatility may increase, while in others, it may decrease.

Deciding Based On These Factors

S&P 500 (ES) mini futures are an ideal solution and a good start for an intraday trader. Their margin is $ 500, and trading volumes are slightly higher than that of crude oil. Your profit/loss can fluctuate within $ 1800 (36 points x $ 50 / point), holding one contract during the trading day. This does not mean that you need to buy and hold a contract all day; this is just an example demonstrating the volatility of a given instrument.

Crude oil (CL) has decent trading volumes, but also requires more margin and is a more volatile instrument. If you hold one contract for about a day, your profit/loss can fluctuate around $ 2100 (2.1 points x $ 1000 / point). This tool is an excellent choice for trading on the market, but it is not recommended for beginners or traders with a small account size (below $ 5000). Looking through the minute chart of crude oil, you will find a large number of opportunities to enter and exit the market, as the price goes all day.

Futures on 10-year US Treasury Bonds (ZN) is another option for intraday traders. It has decent trading volumes, but not as large as on S&P 500 futures. Also, these futures are less volatile in terms of dollar risk per contract. For example, if you hold a 10-year contract during the trading session, the profit/loss fluctuation can reach $ 740 (0.74 points x $ 1000 / point). Having opened the minute chart, you will see many opportunities for entering and exiting the market, as the price fluctuates throughout the day.

Eurodollar (GE) futures may not be seen as an intraday trading tool. This is a very “slow” trading tool. During the trading session, its price can only move once or twice, which limits the possibilities of your earnings. This market is popular with long-term traders and major market players, but not with intraday traders. Look at the minute chart of these futures, and you will find minor price movements that do not speak in favor of intraday trading.

Several words to the conclusion

In total, you have several positions to choose from. If you’re just a beginner, try the E-Mini S&P 500. You can also try the 10-Year Treasury note. They have low trading margins and are ideal for intraday trading. Then you can switch to crude oil. But this will require more money. Now you know about where to look, so try to find the best option for yourself that suits your strategy. Basing on this information, you should create a strategy that fits you most of all. Find your trading style and start to earn money!