Switching to futures

Discussion in 'Index Futures' started by michaelday, Sep 26, 2001.

  1. Since many new traders will have no choice but to trade futures, we should discuss which futures instruments are best suitable for novice future traders. Index futures are obvious, but what about
    currencies or even bonds? Any comment is appreciated.
     
  2. tymjr

    tymjr

    On Sept. 30, the mini Dow will be available on a/c/e. It is a very small contract. Initial Margin requirements are $1,080. Depending on commissions and liquidity, it may prove to be fertile ground to grow skills for new traders or an excellent introduction to index futures for undercapitalized vets.

    Press release:
    http://www.cbot.com/cbot/www/cont_detail/0,1493,11+24+109+4497,00.html

    Brochure:
    http://www.cbot.com/cbot/docs/newdow.pdf

    Contract specifications:
    http://www.cbot.com/cbot/docs/minisizedDow.pdf

    Info on all mini contracts on a/c/e such as Bond, Gold, or the proposed Soybean futures:
    http://www.cbot.com/cbot/www/cont_modular/1,2291,14+371+4,00.html
     
  3. Fohat

    Fohat

    One can start learning about S&P and Nasdaq Emini index futures.

    The underlying indecies are widely followed. They are very liquid, spreads are tight, margin and commissions are low ($2.95 or lower), execution is electronic and fast, there are no middle man (specialist or MMs), no uptick rule - "short at will".

    Keep in mind that approximately:

    1 ES = 500 SPY
    1 NQ = 800 QQQ

    Therefore, chart patterns, risk, profit or loss, volatility and intraday moves for 1 emini ES or NQ futures contract will be like those of 500 SPY or 800 QQQ shares respectively.

    Currently, the Exchange minimum initial margin for one futures contract is : $4,313 for ES and $5,250 for NQ. Maintenance margin is lower: $3,450 and $4,200 respectively. Some brokers offer even lower initial Emini "daytrading" margin.

    With sufficient liquidity, the new Emini Dow futures contract with initial Margin requirement of only $1,080 promises to be an excellent instrument for the novice educated futures traders.

    Because higher leverage is involved ( 10:1 or more), education and risk management is essential.



    Fohat
     
  4. Will DJ futures be available with IB? With what commission?
     
  5. WarEagle

    WarEagle Moderator

    The mini Dow is already listed in IB's symbol lookup as YJ, so I'm sure it will be available when trading starts on it. I'm pretty sure any U.S. futures trade is $2.95 per contract per side, although I have yet to trade any of the A/C/E contracts. I'm really excited about having some of these other options available electronically. I've had the T-bond (ZB) up on my screen watching it for awhile.

    Provided there is good liquidity, you will eventually be able to trade a very diverse list of futures from gold to wheat if you want. I hated trading through a pit because I always felt like I was getting screwed somehow in the time it took to get a fill. I just hope there is enough interest in all of them to keep it liquid. That won't be a problem for the Dow mini.

    Kirk
     
  6. Actually after being a commodity broker for Newport Commodities in Newport Beach, Calif for 8 years I would say none. If you are a novice and want to get started, start trading the small contracts on the Mid-America exchange. I don't recommend bonds or indexs for the novice they can be very volitile, my brother lost $5000 in bonds in about 20 minutes during the Iraqi war. You never know what is going to happen while you are in the market like terrorists flying airplanes into buildings.

    Always use stops and learn how to get out of limit moves so you can protect yourself incase you get locked in. Futures and stocks are two very different games. I would start with the slower moving futures like Corn or maybe a mini-silver or gold contract. Good luck you are going to need it.
     
  7. huby

    huby

    The scariest thing about futures trading to me is the "limit up, limit down" thing. I can handle the added leverage. Just have to be careful. I don't like things that are out of my control though.

    Is there a website anyone knows of that mentions the historical info on when a commodity went limit up or down? Does this happen often with the e-mini? If so how long does it usually last? Hours? Days?

    Sorry if this is a dumb question. I'm a total newbie to futures. Need to do some more research before trading obviously.



    Stocktologist said: ".........learn how to get out of limit moves so you can protect yourself incase you get locked in. "



    How would you go about doing that?
     
  8. WarEagle

    WarEagle Moderator

    Stocktologist,

    My understanding is that the mini contracts on A/C/E are replacing the Mid Am and that the CBOT is shutting that exchange down.

    I agree with you though that beginners need to trade the minis (with great caution) and I would also say that many pros (at least individual traders) are going to them as well because an electronic exchange is just fairer (or is the correct term "more fair"?). Contrary to the crying of pit traders, an open outcry is NOT the most efficient way to conduct a market. I read an article where a bunch of pit traders were changing careers and opening resturants and other businesses because they can't make it as "screen" traders. The fact is that any middlemen (excuse me, middlepeople) that are cut out, increase your bottom line, since you are not paying them too. But I'm getting off topic...

    The fact is, that anyone thinking of changing from stocks to futures understand the risks involved of higher leverage, and the outside influences that affect prices (i.e. wars, OPEC, inflation, limit moves, etc.) depending on the commodity you choose to trade. While the Gulf War affected stock prices too, the added leverage in bonds, as Stocktologist's brother found out, caused him to lose more than his initial margin. Just as with stock fundamentals, the affect of these things will depend on your timeframe...the longer you hold, the more you need to beware of these things.

    One thing anyone considering this can learn from all the posts of the pro futures traders like tntneo and tymjr (and I suggest you go back and read these guy's posts, by clicking on the number of posts under their names, you will learn a lot!) is that its NOT easier to make money than in stocks, only easier to trade (due to lack of downtick rule, liquidity, single routing, etc.). Remember, the best traders (and computers) in the world are trading futures, you are not up against grandma and her investment club...

    But I must admit, if I were being booted from a stock broker as a pattern daytrader with less than 25k I would be looking at this option, since I love to trade and its the only thing I want to do. So for those in this position, commit to learning EVERYTHING you can before you make the jump. Treat it like you would if you could go back and start trading stocks again...think of all you've learned through your mistakes and what you would do over again if you could change the past (i.e. read more, test more, trade smaller, etc.) and then double that before putting on size in the futures. Even though the mechanics of trading are the same, there is still a new learning curve to deal with.

    huby, the index futures do lock limit occasionally, but the limits come off in a short time frame, although I don't recall the exact amount (maybe 15 minutes or so), but this is fairly rare. The agricultural commodities are notorious for this, like lumber or soybeans, and can stay limit for days at a time in worse case scenarios. I don't recommend most traders to EVER trade these things...too illiquid at many times and there is a lot of information you can never know in time that is well known by farmers and large commercial interests, so you are at a huge disadvantage going in. Since I don't trade these things, I have never had to get out of a locked limit situation, so maybe someone else can help you there.



    Best of luck,

    Kirk
     
  9. Fohat

    Fohat

    huby,

    The limit up/down in futures, actually slows down the market and protects the futures trader from sharp moves, it doesn't stop futures trading. When futures are locked limit down, trading is allowed but only at or above the limit price for 10 minutes, thus slowing the sharp price move. The absolute price limits are set on a quarterly basis and are based on percentages of 5%, 10%, 15% and 20%.

    There is no price limit up during RTH (regular trading hours) , only price limits for down markets(limit down) are in effect. Electronic Trading Hours (ETH) trading and E-mini S&P 500, E-mini Nasdaq-100 and FORTUNE e-50 non-pit trading hours will have both up and down limits.

    Keep in mind that stocks are usually locked for 12 hours a day, 8pm-8am, while emini futures trading is almost 24/7. " Lock limits" do not stop futures trading, just slow it. 12 hours a day of stock trading halt is far more dangerous than the lock limit trading brakes that don't stop futures trading.

    Fohat
     
  10. Thanks for the replies guys,
    I'm seriously considering euro currency futures, have been monitoring it on globex on IB's TWS and there is lot of liquidity and
    spreads on average are 2 points.
     
    #10     Sep 27, 2001