Futures contracts are very popular among day traders and HQ Broker, and they offer a wide array of products to trade. Futures do not sport any day trading restrictions like the stock market, which is another great day trading market as per Online Forex Review.
What are Futures?
In the futures market, you can buy, sell, or short sell a futures contract. You can do that anytime the market is open, like many other trades. In the US, the capital requirement that you must have if you want to day trade stocks is $25,000 in your account.
You trade futures contracts in the future market. And a futures contract is a form of an agreement between a buyer and a seller regarding the future price in which an asset will be bought or sold on a specific day.
For instance, if you buy a July crude oil futures contract, you are basically saying that you will buy 1,000 barrels of oil from the seller at the price they pay for future contracts, until the expiration date, which is in July.
The seller, then, agrees to sell 1,000 barrels of oil at the price that they have agreed upon.
The goal here is not to actually buy or sell the barrels of oil. The goal is to make profits based on the price fluctuations after taking a trade.
Another example: if you buy a natural gas futures contract at 2.050, and then your sell it later for 2.100, you made a profit. The future contracts’ price is always moving every time a new buy and sell transaction takes place.
Another thing is that both day traders and longer-term traders trade future contracts. Non-traders can also do so.
There are also futures exchanges where you can trade futures contracts. Among them are the Chicago Mercantile Exchange or Intercontinental Exchange.
Futures Contracts Movements
The minimum price fluctuation that a futures contract can make is called a tick. Meanwhile, the tick size can be different based on the kind of futures contracts that you trade.
To illustrate, crude oil moves in 0.01 increments. The Emini S&P 500 moves in 0.25 increments.
Every tick of the movement represents some cash gain or loss to you while you hold the position. Each tick’s amount is called the tick value and these values are also different based on the kind of futures contract.
A tick in a crude oil contract amounts to $10. Meanwhile a tick in the movement in Emini S&P 500 is worth $12.50 per contract. If you want to find out the tick size and tick value of your futures contracts, you can find the data on Contract Specifications published on the exchange where you trade them.
Trading futures contracts gives you access to a wide variety of indexes, commodities, and currencies. However, you have to keep in mind that even these have their risks and dangers, which you should first study and understand before trying them out. Remember that each kind of contract requires some amount of margin, and that will affect the minimum balance that you are required to trade. Margin requirements can also vary by brokers and their respective trading account minimums.