How To Trade E-Mini Futures

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Learn About Trading Commodities For a Living

Trading commodities for a living is a dream of many aspiring traders, but only a small number of people can make this a reality. Although it is a difficult process, there are several things you can and must do in order to make this a profitable and lasting venture.

Available Funds

Do you have enough money to trade for a living? For some reason, ambitious new traders think they can start trading commodity futures with $10,000 and they will make enough money every month to live on. It is certainly possible, but highly unlikely. Trust me when I tell you this won’t work.

To trade for a living, you should have enough money saved that you can live on for at least a year. You will also need to have a commodity account funded with enough money that you are able to generate enough profits every year. If you want to make $50,000 a year, you should have a $250,000 account. If you are able to make a 20 percent return each year, you will make $50,000.

Many new commodity traders think they can easily make 100 percent every year, but that is being unrealistic. You can certainly make those returns in a year trading commodities, but you are probably taking on too much risk and putting yourself in jeopardy of losing your trading job. Think of this as a business and not a trip to Las Vegas. Always live to trade another day.

Trading Plan

It is a must to have a sound trading plan in place if you expect to make a living from trading commodities. You should at least have had some success and a profitable track record in trading before you begin doing this full time. Your trading plan should be in writing on your trading methods and risk controls. This is your business plan that will guide you through day-to-day operations. Don’t overlook or procrastinate on a trading plan.

Don’t Trade to Pay the Rent

The absolute worse thing traders can do is put themselves in a position where they have to make enough money every month to pay for rent and groceries. That is a serious case of having your back up against the wall. This will cause you far too much stress and make trading much more difficult.

We do not make good decisions when we are under too much stress. This is an almost a certain recipe for disaster. I’ve seen some traders pull it off for a while, but you will always have the inevitable drawdown that will throw you into a tailspin. A losing month often makes traders take additional risks in the following month and that puts the account into jeopardy. This is when meltdowns occur and accounts get wiped out.

Making it Work

The people who make a living from trading commodities take it very seriously. They are prepared with a well-researched and tested trading plan. They follow their plan like a robot (most of the time) and don’t take on too much risk. It is tempting to bet the farm on an excellent trade setup, but it is not worth the risk. Not every trade works, no matter how good it looks.

The hard facts show that most people who try trading commodities fail. Don’t expect this to be easy. It is wise to trade part-time initially and become a profitable trader for at least six months before you try to become a full-time trader. The learning curve is normally about one to two years before most traders can consistently show profits. Remember, make sure you have plenty of funds available for trading and living expenses and treat this endeavor like a business.

Top 4 mistakes that cause futures traders to fail

Many futures traders start trading, make some decent profits, and then, all of the sudden, encounter what seems to be an endless string of losses. These losses eat away at their trading capital as they struggle to figure out what they are doing wrong. To be successful trading in the futures market, you must know what the common pitfalls are and how to avoid them.

Common Futures Trading Mistakes

You can improve your odds of success by avoiding common mistakes many beginner futures traders make. These include:

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1. Not Sticking With Your System

All successful futures traders have a system in place to help them select trades and keep losses to a minimum. However, just when a trading strategy is starting to show promise, many traders will deviate or abandon the system they are using. Doing so allows emotion to creep into their trading, which ultimately leads to losses. (Learn more about systems in our pros and cons guide to Trading Systems.)

2. Not Protecting Yourself

Futures trading (like all trading) involves a certain degree of risk, so it is important to protect yourself. There are a few ways to do this, such as using sell or buy stops to limit your losses to a comfortable level, or by using hedging strategies like buying puts. Taking steps to protect yourself will help keep losses to a minimum while maximizing profits. (To learn more, read “The Stop-Loss Order – Make Sure You Use It.”)

3. Not Staying Focused

Trading futures successfully requires your undivided attention to read and evaluate the markets effectively. Sometimes distractions are unavoidable, but you always want to have as few as possible when you are trading.

4. Not Being Open to New Ideas

The markets are always changing. No matter how great you think you are as a trader, there’s always a new idea that can help you improve your results. Too often, traders get caught up in thinking they already know enough and aren’t willing to learn anything new. As market conditions change, this type of trader is left behind with nothing to show but losses. However, if you remain open to new ideas, you will be able to change with the markets – and profit consistently, no matter what they do.

Qualities of Good Futures Traders

A good futures trader is someone who can profit in any type of market condition. Traders come from many different backgrounds and lifestyles, but most good futures traders are:

1. Independent Thinkers

Great futures traders think for themselves rather than follow the crowd. They pay attention to what is happening in the markets and the world to help inform their trading decisions. When the market is falling, they avoid panicking and turn to bearish strategies to make money. They also avoid getting too greedy in rising markets when many investors behave as if the market will go up forever.

2. Strong Analysts

To be a good futures trader, you must understand technical and fundamental analysis and be able to apply them to spot trading opportunities. If you are a beginner, gaining the necessary knowledge and experience may seem like an enormous task. But a wealth of information can be found in books, magazines and on futures-related websites. As you are learning, you can practice and hone your skills by paper trading. (For more, see “Blending Technical and Fundamental Analysis.”)

3. Active Learners

Successful futures traders never stop learning. Consider going to seminars or other events where you can interact with traders and continue your education.

4. Handy With the Tools of Their Trade

Information is key when trading futures. Make sure you have the ability to place trades 24 hours a day, have access to real-time quotes and software to help you analyze the markets, and be able to receive fast executions. With these tools, you can react quickly to changing market conditions.

The Bottom Line

Being a good futures trader means staying informed, sticking with your system, honing your skills and learning from mistakes – your own and those of others. By following these simple tenets, you can increase your odds of seeing more profits and fewer losses in the challenging-yet-rewarding futures market.

How To Trade E-Mini Futures

The Standard and Poor 500 is a daily inclusion in most market news referring to the US trading session as it is considered the second most popular and indicative index of the US market after the Dow Jones Index. The index includes both growing stocks and less volatile stocks which on their average present a indicative outlook of the US stock market. Stocks that are included in the S&P 500 are additionally part of the more broad S&P 1500 and S&P Global 1200 stock market indices.

The companies which belong to the S&P 500 are selected by committee and they are selected to be a part of the index due to their ability to shape an average outlook of the US economy in a whole. In difference to other compilations like the Forbes 500 the S&P 500 does not include companies solely based on their level of gross revenue but takes into consideration liquidity and volume of trade around stocks of the companies themselves.

The S&P 500 is updated during trading sessions every 15 seconds; important adjustments that might include stock splits, restructuring events or replacements of companies due to migration outside the US are timely adjusted after the close of trading. These type of adjustments are known as divisor adjustments and they are mandatory in order to keep the S&P 500 accurate and moreover trustworthy.

E-mini S&P 500

In online trading and under the chapter broadly known as online trading or more broadly forex trading the S&P 500 is only reasonable to be both mentioned and used in many cases through out a trading day with more weight and more presence during the US trading session as it is a strong determinant of the market outlook and therefore has a contributing role in the daily outlook and foreign exchange prices of the USD against a basket of currencies.

In addition to its contributing role as a market determinant, within the trading terminals offered at the vast majorities of forex brokers under the category of products called CFD’s on Future Contracts you will come across the E-mini S&P 500 or E-mini which belongs to the S&P 500 Futures and is presented under the ticker symbol #ES.

The E-Mini or E-Mini S&P 500 is a futures contract which is electronically traded on the Chicago Mercantile Exchange similarly to Dow Jones Futures (Mini-sized Dow) as they are referred to within online trading platforms and represent a specimen of normal futures contracts.

E-mini S&P 500 future contracts are one fifth the size of the standard S&P 500 futures contract and posses main advantages towards their trading audience as they include liquidity, greater affordability for individual investors and around-the-clock trading through online trading terminals offered at forex brokers.

The introduction of the mini S&P 500 was made by the Chicago Mercantile Exchange in 1997 at a stage when the value of the existing S&P contract was growing too big for small investors to trade due to capacity lack.

The introduction of the mini S&P resulted to rapid growth as it quickly managed to become the world’s most popular equity index futures.

Standard and Poors

The actual institution to which the title of the above mentioned indexes belong to are Standard and Poors a a US headquartered financial services company which is a division of the Mc Graw Hill companies often referred to as S&P.

Standard and Poor provide in depth research and analysis of both stocks and bonds as they are well known for their stock market indexes which are daily referred to in the vast majority of market news, trading news and forex market indicators.

Amongst them are the S&P 500 which primarily represents US headquartered companies, the ASX 200 which represents Australian based companies trading on the Sydney stock exchange, the Italian MIB and the S&P CNX Nifty which is an indicative index for India.

On another note Standard and Poor are additionally one of the three largest credit rating agencies together with Moodys and Fitch ratings. Their publically released credit ratings include both public and private corporations which in many cases affect interest rates on a macro level as derived ratings reflect creditability and financial health which therefore reflect overall risk assesment.

S&P 500 Ratings

S&P 500 ratings range in short term and long term ratings; long term borrower’s ratings range from AAA to D with intermediate ratings through out the total. The lower the rating the higher the interest rate at which the borrower is likely to acquire a loan as the moving down from AAA to D the scale in reality represents higher risk and therefore affects the borrower with either higher interest rates or with more securities needed in order to lend. Short term rates more or less represent the commitment of issuer to meet specific obligations within agreements are strong or low. The scale is at its highest (best rating) at A-1 and at its worst at D.

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How to Trade Dow Jones Index Futures

Futures contracts such as the E-mini Dow enable just about anyone to trade or invest in the Dow Jones Industrial Average (DJIA), the most iconic stock index in the world. The Dow tracks 30 blue-chip U.S. stocks from nine sectors, ranging from industrials to health care to consumer staples. The Dow is often considered synonymous with “the stock market,” though the S&P 500 Index, which is comprised of 500 companies, more broadly represents the U.S. equities market.

Futures Trading Basics

A futures contract is a legally binding agreement between two parties in which they agree to buy or sell an underlying asset at a predetermined price in the future. The buyer assumes the obligation to buy and the seller to sell. And the value of the underlying asset—in this case, the Dow—will usually change in the meantime, creating the opportunity for profits or losses.

Some commodity futures contracts still require actual physical delivery of the underlying product in question, such as bushels of corn, but that is not the case with Dow and other financial market futures, which were created to allow traders to easily hedge risk and speculate for profit. They can be settled for cash.

Key Takeaways

  • Dow Jones futures contracts enable just about anyone to speculate on whether the broader stock market will rise or fall.
  • Dow futures contracts can be traded on leverage, meaning you only need to put up a fraction of the value of the contract.
  • Dow futures markets make it much simpler to short-sell the broader stock market than individual stocks.

Trading the Dow With Futures Contracts

Put simply, DJIA futures contracts enable traders and investors to bet on the direction in which they believe the index, representing the broader market, will move. That simplicity, the high trading volumes and the leverage available have made Dow futures a popular way to trade the overall U.S. stock market. About 200,000 E-mini Dow contracts change hands every day.

Using Leverage in Trading

One of the most attractive features of futures contracts is leverage. A trader can buy an E-mini Dow contract for about $5,500—and that futures contract is worth $5 for every point on the DJIA. So if you buy when the index itself is at 29,000, and sell when it hits 30,000, you’ve made $5,000 on the trade, nearly doubling your money.

Beware, though, that leverage cuts both ways, magnifying losses as well as gains. A drop of 1,000 points on the Dow would nearly wipe out your $5,500.

Available DJIA Futures Contract Sizes

There are now two Dow futures contract sizes available. The E-mini, or mini-Dow, contract, as noted above, represents $5 per point on the DJIA. The Micro E-mini is one-tenth the size of the E-mini, and represents 50 cents per point, with a margin requirement of only $550.

Opening a Futures Trading Account

The first step to trading Dow futures is to open a trading account or, if you already have a stock trading account, to request permission from your brokerage to trade futures. Most major brokerages such as E*Trade, TD Ameritrade, and Interactive Brokers offer stock index futures. They generally charge a commission when a position is opened and closed.

Key considerations when choosing a broker are the ease of the trading platform, commission charges, customer service, and features such as news and data feeds and analytical tools such as charts.

Select a Futures Trading Strategy

After selecting a broker and depositing funds into a trading account, the next step is to download the broker’s trading platform and learn how to use it. You don’t want to get caught attempting to make quick trading decisions in a volatile market before you are proficient in using your trading software.

Test your trading strategy before you start risking your hard-earned money.

Once you know your trading platform, select a trading strategy and test it using a demo or trade simulator account. Only begin live trading with real money after you have a strategy that is consistently profitable in simulated trading. This is even more important when trading with highly leveraged instruments such as futures.

Buying Long and Selling Short With Futures

In futures trading, you can buy long or sell short with equal ease. Futures markets aren’t burdened with the same short-selling regulations as stock markets. If you expect the DJIA to go up, buy a futures contract; if you expect the index to decline, sell one short. Take a position in the futures contract trading month you want to trade—the one with the closest expiration date will be the most heavily traded.

Futures Margin Requirements

When you open a position, the broker will set aside the required initial margin amount in your account. To hold the position, you must maintain sufficient capital in your account to cover the maintenance margin. The maintenance margin is lower than the initial margin requirement.

If your account value dips below the maintenance margin level, you will receive a margin call from your brokerage that will require you to liquidate trade positions or deposit additional funds to bring the account back up to the required level.

Closing a Position

Close an open trade simply by entering an opposite order. For example, if you opened the trade by buying five E-mini Dow contracts, you would close the trade by selling them with the same futures contract expiration date. If you opened by selling five contracts short, you would need to buy five to close the trade.

It is also possible to partially close out of a position if you have more than one contract—for example, selling three of five contracts originally bought, leaving a position of two contracts open.

Trading Hours

Unlike the stock market, financial futures trade six days a week, Sunday through Friday, and nearly around the clock.

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