Watch this Stock Market Training FREE Video Series by Bill Poulos that shows how to spot 4 lo risk and high probability profit pockets in any stock chart. Know this shocking Dow Futures secret that can make you rich. Watch this Emini S&P Futures Day Trading Video by Malcolm Robinson that can explode your profits. Many investors have started loving day trading. Most of them are day trading stocks or currencies. Day trading is a serious business. You cannot take it as a hobby. A day trader opens a trade and then closes it before the end of the day seldom taking it overnight to the next day. The purpose of each trade is to make a profit from the underlying short term volatility in the market.
A stocks day trader need to sit in front of the computer for long hours first selecting the right stocks for day trading and then planning each trade. This requires a lot of research. With the present stock market, it is becoming day by day difficult to find hot stocks. So instead of looking for hot stocks why not profit from the stock market direction itself.
You see, there are many stock indexes that are used to show the combined performance of the stocks included in them. The most famous are the S&P 500, DOW, RUSSEL and the NASDAQ. Let’s talk about S&P 500 Index. It is the value weighted index of 500 stocks that are traded on the different US Stock Markets. These 500 stocks are selected so that there is a broad representation of the different sectors in the economy.
S&P 500 Index has in fact become the benchmark index of the US economy. When it is going up, US economy is supposed to be buoyant and when it is going down, US economy is considered to be not doing good. So instead of researching the different sectors of the economy and then selecting those stocks that are fit for day trading that can be a time consuming process, it is a much better option to trade one of these stock indexes.
CBOT and CME allow futures trading on these stock indexes. You can trade S&P Futures, DOW Futures, NASDAQ Futures and a host of other futures contracts on the different stock indexes. S&P futures are the most popular among the day trader. Keeping in view their popularity, mini versions of these stock index futures also known as Eminis have also been introduced that have a much lower margin requirements as compared to the standard contracts.
Specializing in trading the Emini S&P futures is not difficult. It is much easier than selecting individual stocks for day trading. In the beginning you can paper trade. Many traders trade Emini S&P Futures and make a successful living. You too can day trade Emini S&P Futures and make a successfully living trading these contracts!
Trade S&P Futures and Dow Futures. The E-mini S&P futures contract trade almost 24 hours per day with a 30 minute maintenance break in trading from 4:30 to 5:00 PM daily. The monthly identifiers for the E-mini S&P futures contracts are H for March, M for June, U for September and Z for December.Learn swing trading.
If you are a new E-mini trader you be careful as traders are expected to pay for the difference between the margins for the entry and exit points. In case you lose at the end of the day you are likely to pay in a big way. The margin requirements for E-minis are much less than the normal contract. The day trading margin is less than the margin to hold an overnight position in S&P 500 E-mini Futures contract.
All futures contracts are settled daily (assigned a final value price). Based on this settlement price, the values of all positions are marked to the market each day after the official close. Your account is then either debited or credited based on how well your positions fared in that day’s trading session. In other words, as long as your positions remain open, cash will either come into your account or leave your account based on the change in the settlement price from day to day.
As losses are not allowed to accumulate without some response being required, this system gives futures trading a rock-solid reputation for creditworthiness. It is this mechanism that brings integrity to the marketplace.
Leverage: Because futures markets are highly leveraged, the effect of price changes is magnified. With stocks, you typically pay the price in full (i.e., without leverage) or on margin (50 percent leverage). If you speculate in futures and the market moves in your favor, leverage can produce large profits in relation to the amount of your initial margin. However, if the market moves against your position, you also could lose your initial margin and then some.
Suppose you have decided to put $10,000 into a futures account and you buy one E-mini S&P 500 index futures contract when the index is trading at 1000. Your initial margin requirement for that one contract is $3,500.
Each one-point change in the index represents a $50 gain or loss because the value of the futures contract is $50 times the index. You could realize a profit of $2,500= (50 points) ($50) if the index increases 5 percent, to 1050 from 1000. Conversely, a 50-point decline would produce a $2,500 loss. The $2,500 increase represents a 25 percent return on your initial investment of $10,000 or a 71 percent return on your initial margin deposit of $3,500.
That’s the power of leverage. Conversely, a decline would eat up 25 percent of your original $10,000 or 71 percent of your initial margin. An increase or decrease of only 5 percent in the index could result in a substantial gain or loss in your account in either case.
It makes your money work harder and produces more in a shorter period of time when everything’s going your way, than if you paid for everything in full, up front. In such a situation leverage can be a beautiful thing. Indeed, leverage is the key distinctive aspect of futures trading as compared with stock trading.
Now suppose you use $5,000 in your account to buy an E-mini S&P 500 contract worth $50,000. However, prices fall by 10 percent instead of going up, and the contract’s value drops to $45,000. Your $5,000 is completely gone. This is the dark side to leverage. You’ll be obligated to put up even more money if the market keeps moving against you unless you get out of the position with an offsetting sale when your maintenance margin level is violated. Leverage is the one ingredient that can produce either horror stories or happy endings. It is extremely important that you fully understand the power of leverage and how to manage it well to get the happy ending.
Trade S&P Futures and Dow Futures.S&P futures contracts are valued in ticks worth 0.1 index points or $25. Regular trading hours for S&P futures contracts are from 8:30 A.M to 3:15 PM. S&P futures contracts are another example of how 24 hours a day trading enables traders to respond to economic news releases in pre-market and after-market sessions.Know candlestick charting.
The evening session starts at 3:30 PM (15 minutes after the close) and continues on the Globex until 8:15 AM overnight. Individual contract holders are limited to no more than 20,000 net long or short contracts at any one time.
A price limit is how far an S&P futures contract can rise or fall in a single trading session. The limits are set on quarterly basis. If the index experiences major declines or increases beyond these limits, a procedure is set in place to halt trading. If these price limits are crossed, circuit breakers are triggered.
Collar Rule: The collar rule addresses price swings related to program trades that move the Dow Jones Industrial Average (DJIA) more than 2% by requiring index arbitrage orders, or orders that bet on the spread between the futures and the cash of stock indexes to be stabilizing. This limits the traders from piling buy or sell orders in an attempt to exaggerate the gains or losses of the market. What this rule does is limit the chance of huge gains or losses as a result of futures trading.
Overnight or pre-market trading can be thin and dangerous especially during slow seasons in the stock market such as summer, fall and around the winter holidays. Once you have mastered futures basics such as the performance bond margins, the mark to market requirements and the account specifics, it’s time to learn how a futures contract ticks.
Hundreds of futures contracts trade on the federally regulated futures exchanges in the United States. Each of these exchanges trade contract that are somewhat unique to it. CME’s most actively traded contracts are Eurodollar futures and S&P futures including the E-minis.
E-mini S&P Futures contracts: The E-mini S&P futures contracts (ES) are among the most popular stock index futures contract because they enable you to trade the market’s trend with only one fifth of the requirement. The E-mini S&P futures contracts (ES) are the favorites of the day traders because of its high intraday price volatility and major price swings on a daily basis.
One tick on E-min S&P futures contract is equal to 0.25 of the index point or $12.50. The value of the E-mini S&P futures contract is $50 times the value of the S&P 500 stock index. The E-mini S&P futures contract can be very volatile and can move even more aggressively during times of extreme market volatility.
Trade S&P Futures and Dow Futures.S&P Futures are the most popularly traded stock index futures contract. S&P futures contracts are traded on the Chicago Mercantile Exchange (CME). The S&P 500 stock index is a market valued weighted index of 500 large capitalized stocks traded on the New York Stock Exchange (NYSE), American Stock Exchange (AMEX) and Nasdaq National Market Executive System (NASDAQ).Learn swing trading.
The S&P 500 is made up of 400 industrial companies, 40 financial companies, 40 utilities and 20 transportation companies offering a fairly diversified view of the US economy. The S&P index introduced in 1957 is currently the investment industry’s standard for measuring portfolio performance.
The original S&P 500 futures contracts were valued at $500 times the index in the beginning. As the stock market began to surge higher in those days, the index more than doubled in three years. The value of the S&P futures contract neared $500,000. A 10 point change on the S&P 500 index was worth $5,000 with the index approaching the 1000 level.
Margin requirements for the S&P futures contract trading were very high. Many traders were ruled out of the futures market with the margin requirements for that sized contract. CME introduced an S&P futures contract that was worth $250 times the value of the index in 1997. The value of the contract was halved in order to make the S&P futures contract more accessible to traders. Now, a move of a full point is worth $250 only. Suppose the S&P 500 index value is at 1350. The value of the S&P futures contract will be ($250) (1350) = $337,500.
Earlier in that same year CME introduced another mini S&P futures contract. This news mini contract became highly popular with individual traders instantly and was a hit with the investing public. E-mini S&P futures contract is worth only $50 times the S&P 500 index and the value of this new E-mini S&P futures contract brought the initial margin requirements down to around $4,000 at that time.
Even with a margin requirement of only about 6 percent of the contract’s value, the rising stock market put the initial margin at $15,000 with this $250,000 contract, keeping the S&P futures contract out of the reach of many individual speculators. The E-mini put the S&P 500 Index within the capabilities of many individual accounts.
But the real innovation was letting small orders of this new E-mini market trade entirely on an electronic platform and not in the traditional open-outcry pits. CME officials decided that trading orders could take place entirely on a trade matching computer with no human intervention, giving traders direct access to the market without going through an order handler.
E-mini S&P futures contracts would no longer be limited to after-hours trading or to supplement the primary pit contract. As the allowable number of contracts was increased over time, electronic trading became the mainstream market for the E-mini S&P futures contracts.
And, as long as trading was all computer-based, the CME also decided it might as well keep the market open almost 24 hours a day. The radical move caught the wave of online trading and day trading that was revolutionizing the stock market at the same time.
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