Over the last two years, Online Trading Academy has grown exponentially as a direct result of the introduction of the three-day market timing class. With this expansion, we have brought on many new students that had little or no experience in trading futures. For somebody that doesn't understand the futures market, initially, the first impression is that futures trading is "very risky." This can be true for any leverage asset class if the trader doesn't practice a sound low-risk, high-probability strategy.
Futures can be a great vehicle for generating daily and weekly income because of the leverage (roughly ten to fifteen to one). For example, a trader can control a one hundred troy ounce contract of gold (notional value of $124,000 at today's gold price) for a deposit of $6,600. The leverage gets even better for the Stock index futures contracts such as the E-mini S&P. The intraday margin is reduced to 25% of the full margin in most brokerage accounts. This means that a trader can control over $90,000 worth of the index for a mere $1,200 deposit in a futures account. Don't let these numbers frighten you as it's all about entering low-risk trades with a high probability. If this is the case, this type of leverage should get a trader excited about the potential opportunities. This alongside the fact that futures trade continuously 24 hours a day, five days a week also makes them an enticing vehicle for the working professional.
As is the case with all asset classes, futures come in variety of contract sizes and volatility levels. So the question for those starting out is this: "Which contracts can I trade that require lower margins and are less volatile?" Keep in mind that volatility can change very quickly, so a trader needs to adapt.
Since most new futures traders are somewhat familiar with the stock market, a good place to start is in the stock index futures. The NASDAQ in particular is a good starting contract. The intraday margin is less than a thousand dollars, and it trades $5 per tick and $20 for a whole point. The liquidity is also very good in this contract as it trades on average of 400,000 contracts per day.
For those interested in the currencies futures, the British Pound and the Canadian dollar are also smaller, less volatile contracts that can be easier to trade for someone staring out. The BP (British pound) pays $6.25 per tick with a margin of less than $2,000. The CD (Canadian Dollar) is even lower in its margin requirements at around $1,300. It pays $10.00 per tick.
In the grain markets, the 5000 bushel Corn and Wheat contracts are also viable for the trader just starting out. These both have margins around $2,000 and pay $50 per point. The trading hours are somewhat unique, so make sure you check the CMEGroup website for the trading hours, and also make it a habit to ,check a commodities calendar at the beginning of every week for upcoming reports that may impact prices.
Lastly, the interest rate market is very important in the financial markets as its price movement can have ramifications throughout the global financial system. The 10-year US Treasury note contact is a contract that can be traded by the novice. This contract controls a notional value of $1,000 worth of the 10-year US Treasury note, and it has a margin that's roughly $1,300. It pays $15.625 per tick.
And there you have it. This is a small group of markets that I recommend for the trader learning a low-risk strategy. And as is the case when starting any new endeavor, make sure you initially practice on a simulator account to gain the practical application and confidence of the strategy. I hope this helps, and I look forward to seeing you in the classroom or the XLT rooms.
Editor's note: This story by Gabe Velazquez originally appeared on Online Trading Academy
To read more from Online Trading Academy, see the following articles:,
The Mad Hatter and Market Illusions
Black OPS to Profit
What is Your Favorite Currency Pair to Trade?