Stocks Options Futures

Minimum acct. balance to day trade

$25,000 $25,000 As low as $3,000 (depends on broker)

Leverage Between 0x and 2x

Around 15x for ATM option

Between 8x and 87x

Equivalents 500 shares 10 ATM calls 1 future contract

Capital gains: daytrading

100% short term

100% short term

1256 contracts = 40% short term 60% long term

Non-1256 contracts = 100% short term

� No pattern day trading rule

� Efficient use of capital

� 1256 contract means 60% gains/losses taxed at long term rate

� VOLATILE!

� Futures trade on margin

� Initial margin amount is set by the exchange and is subject to change

� Example: ES is set by CME at $5,625 per contract

� Each future has a different tick amount, dollar value per tick, and trading hours, expiration dates

� Know these before considering trading a specific future

� Futures are speculations about future prices, NOT what the future will actually bring

� Always a buyer and seller

� No difference between buying and selling

� Contracts have expiration dates similar to options� But no greeks (other than delta)

� At expiration, held contracts must be performed� Goods exchanged, cash settled, etc

� Never hold over expiration!

� /XXY#� XX = Symbol name

○ S&P 500 e-mini = ES

� Y = month code○ June = M

� # = last digit of the year○ 2009 = 9

� Example: � June 2009 S&P e-mini = /ESM9

� Commodity Futures� Gold, Corn, Wheat, Oil, Natural Gas, etc.

� Index Futures� S&P 500, Dow, NASDAQ, Russell 2000, FTSE,

Nikkei, etc.

� Forex Futures� Euro, Pound, Yen, Aussie, etc.

� Interest Rates� 30 year Treasury bond, 10 year, etc.

� Weather� Cooling, Heating, Hurricanes, Snowfall, etc.

� Trader puts up a performance bond (margin) to guarantee against losses� ES - $5,625 initial margin controls $43,300

� Gains and losses are settled immediately

� Margin call if account less than 80% of initial margin

� Intraday margins are set by the broker (like TOS) and not by the exchange� These vary from as low as $500 to as high as the

initial $5,625

� TOS is 25% of the initial margin = $1,406.25 (30x leverage)

� Most liquid of all futures products

� Widely followed and discussed

� Best representative of the market as a whole

� Best way to introduce yourself into the futures market

� Some people make their entire living off of this one product

� Tick size = 0.25 point

� Tick dollar increment = $12.50

� 4 ticks per point

� 1 point = $50

� Average daily range – currently around 25 points� $50 * 25 = $1,250

� Trading Hours: 24/5� Intraday hours: 9:30am to 4:15pm EST

� Closed from 4:15pm to 4:30pm EST daily

� Weekly: Open Sunday 6pm to Friday 4:15pm EST

� For more information check out www.CME.com

� Volume and liquidity are very important for short term futures trading

� Bid / Ask should be 1 tick wide

� Daytraders need to get in and out quickly

� Each future has different time frames when volume is heaviest

� Examples:

○ S&P (ES) – best during US market hours

○ Euro currency (6E) best during European market hours

� If you trade with any volume, commissions are vital

� Scenario 1: 10 round-trip trades per day, 5 contracts, $3.50 commissions ($7 RT)

� 10 * 5 * $7 = $350 per day

� $350 * 5 = $1,750 per week

� $1,750 * 4 = $7,000 per month

� $7,000 * 12 = $84,000 per year

� Scenario 2: 10 round-trip trades per day, 5 contracts, $2.20 commissions ($4.40RT)

� 10 * 5 * $4.40 = $220 per day

� $220 * 5 = $1,100 per week

� $1,100 * 4 = $4,400 per month

� $4,400 * 12 = $52,800 per year

$3.50 comm. $2.20 comm. Savings

Daily $350 $220 $130

Weekly $1,750 $1,100 $650

Monthly $7,000 $4,400 $2,600

Yearly $84,000 $52,800 $31,200

$31,200 = Annual salary working full time at $15 per hour

� Using scenario 2 from before:� 10 trades per day, 5 contracts, $2.20

commissions

� Assume conservative average of 2 points per day

� 2 points * 5 contracts * $50 per point = $500

� $500 - $220 commissions = $280 per day

� $280 * 5 = $1,400 per week

� $1,400 * 4 = $5,600 per month

� $5,600 * 12 = $67,200 per year

� Same scenario:� 10 trades per day, 5 contracts, $2.20

commissions

� Now assume aggressive average of 6 points per day

� 6 points * 5 contracts * $50 per point = $1,500

� $1,500 - $220 commissions = $1,280 per day

� $1,280 * 5 = $6,400 per week

� $6,400 * 4 = $25,600 per month

� $25,600 * 12 = $307,200 per year

1. Software / Tools

2. Commissions

3. Data Feed

4. Intraday Margin

� $500 to $5,625

5. Customer Service

� www.mirusfutures.com

� www.thinkorswim.com

� www.interactivebrokers.com

� www.infinityfutures.com

� www.alaron.com

� www.mfglobalfutures.com

� www.pfgbest.com

� Futures can be fast movers

� Many futures day traders prefer to use tick or constant volume bar charts

� Warning: Prophet charts are terrible for intraday futures trading

� Recommend TOS charts or NinjaTrader charts with a good data feed

� Allows you to set multiple price targets and stops

� Easy visual representation of the market

� Shows depth of market (DOM)

� Moving Averages

� Oscillators

� Trendlines

� Price Patterns

� Pivot Points

� Fibonacci Retracements

� Value Areas

� **too deep to go into all these today**

� The majority of futures traders blow out their account very quickly

� Respect the leverage!

� Start in Simulation / Papermoney

� Do not hold overnight yet

� ALWAYS have a stop loss in place

� Progress to 1 live contract after consecutive long term successes

� Continue progression slowly