Hi everyone, I've been actively trading stocks for a few years now. I decided that I'm going to start looking into trading futures instead. I understand stocks very well (fundamental analysis, technical analysis) and money management. It seems that trading futures should be very similar but I have to admit I'm a little confused as to how the numbers work. With stocks, you make a difference of the cost of shares multiplied times the current price you bought and sold. But with futures (I'm currently trying to learn e-minis) they have a fixed profit/loss amount per tick. What I don't understand is if the ES2U is at 1000 or 1500, the $ amount per tick is still $12.50 (or $50 per full point). Can someone explain this? I'm used to working in percentage terms so the fixed dollar amount no matter what price seems very foreign to me. If the S&P is at 1000, 10 points is a 1% change whereas if the S&P is at 500, 5 points is a 1% change. That's twice as much profit from the same move. Please help! Thanks
Margin is the denominator and normalize the proportion. Per contract, you double your capital every 30 points/contract. Usually the daily range can be made As a profit segment(s)) in the first couple of hours. Usually this is over 1/3 of the margin required to double. Stocks are not as leveraged as commodities. I assume people know what they are doing. When this is the case, you make a lot of money in a very short time. Today, trading the observable price segments on 5 minute bars could have taken as few as 5 bars (bar 66 to bar 70, inclusive). The other 6 trades were longer and had more elements in their orders of events. Basically you enter on the open (bar 1) and hold and reverse throughout the day to bar 78. If you follow CW thinking, then most of the time you are on the sidelines for some CW reasons. The ratio of trading stocks to commodities by doing the same thing is about 25:1 in terms of events happening. In stocks making 10% (if you take half the offer) takes about 4 days.
The value of an ES contract is 50x the SP500 index. 50 x 1300 = $65,000. Each tick = 0.25pts, or $12.50. There is a "fixed amount per tick" in stocks, too... known as "the penny".
almost all your questions can be answered very clearly on the CME website. if you're comfortable with stocks, I would suggest trading SPY with real money and simultaneously trade ES in a sim account or better yet trade them side by side for a while in a paper account. IMHO, too many new traders start trading ES without understanding the futures market. It is very elemental and can usually be best understood with examples of how hedgers use it for commodities. Almost all of that is explained on the CME site. It will be well worth your time to read the info on corn, even though you already know you just want to trade ES. Any good old book on commodites you can pick up at the library (if they still have them) or used on amazon is worth reading. The books written after they invented ES are not worth reading and I certainly wouldn't waste one penny on them. for some reason, stock and futures traders very rarely get along too well
to Scataphagos: I see what you're saying. So essentially it's like buying groups of 50 shares of SP-500. Then depending on how much cash is in your account and how many contracts you use you can be extremely leveraged or conservative. The thing about stocks (spy,sds, bgu, bgz) is I can use a small portion of my capital and pyramid into a position if it's going my way. With Emini I think you'd would need at least $50,000-100,000 just to have a conservative intermediate term approach that you can scale into without being too highly leveraged. It seems like most people trading emini are looking to scalp quick profits on a 1 minute chart with high leverage whereas I was looking to build positions that are in place anywhere from 3 days to 2 weeks. It's kind of a bummer they don't make a MINI E-mini, lol. I think I only have half the cash necessary to trade them with proper risk control.
One of the main reasons I was interested in Eminis was the tax benefits of the 60/40 rule. But I think I'll have to be better capitalized to start trading emini. Does anyone know any other futures contracts that are less leveraged that I could trade besides Emini? Can you trade currencies on low leverage? Thanks for the help.
Jack, I almost forgot. Sorry for interrupting guys. Blankfein called yesterday. Guess what this dickhead asked for?! You will never guess. He asked for a place in our office. Can you believe that? What a moron. But no worry I told him that we are full already and we can not cancel Merkel or Clinton, right? I need some advice here... I mean we fucked up with Buffet a couple of days ago. so I do not want to make a mistake this time. Poor guy, hoped he can trade with us... What do you think? We still have lots of offices all over world...
The ES is called "mini" because it is the small version of the pit traded SP500 futures contract... which trades at 250x the SP500 index.
the way to do that is spread ES vs YM. There's a slight difference in contract value so you end up with a micro emini. CME will give you a big margin discount, I forget I think it's at least 80%. Again, you can read all about it on the CME website.
so for instance the contract value of ES is about 67k and YM is about 63k so that would give if you are long ES and short YM a 4k micro contract, and you can put it on for peanuts. yes, you pay the commish and spread, but that is insignificant if you hold for more than a week. the real money is usually made when someting happens to one of the Dow stocks, or you get intimate and leg out. Plus, there is always the performance spread between the Dow and the S&P.