When it comes to the different asset classes, I get more questions about the Futures markets than any other markets.
This is because many people hear from others how great these markets are for short and long-term trading but know very little about them. The Futures are some of the highest volume markets in the world. They have many benefits that other asset classes don't and I will bullet those points for you here.


Benefits of the Futures Markets:

  • No $25,000 minimum requirement like you have in Equities

  • Plenty of leverage, low margin requirements

  • Most futures markets have available around-the-clock trading

  • Low commissions

  • Only set of markets in the world where you have true non-correlated / diverse opportunity which is key for managing risk

  • Lower risk if you use protective stop orders

  • Huge volume, 24 hour Electronic trading

  • 60/40 Long term capital gains tax treatment


How Do You Trade Futures?

To answer this question, let's look at a trade right out of the Extended Learning Track (XLT) - Futures Trading class last week.

S&P E-mini, XLT Trade – Monday March 16, 2009

Lessons From The Pros

During our trading and analysis XLT sessions, we identify support (demand) and resistance (supply) levels. These are price levels where the chart is telling us there are either more buyers than sellers or more sellers than buyers. This is exactly where we want to enter our trades as the risk is lowest, reward is highest, and the probability of the trade working is strongest. In the S&P E-mini here, we identified a supply level before the U.S. stock market opened. Once the market opened on the 16th, we waited for price to rally up to that level where we were interested in taking a short position. We were simply selling to someone who was buying after a rally in price and at a price level where the chart was telling us supply exceeded demand. In other words, we were selling short to a novice buyer.
Futures trading is a zero sum game. The traders that know what they are doing get paid from those who don't. The gap below our entry point was our profit target area for the short position. When you sell short in futures, you simply push the button. There never was an "uptick" rule. These trades are done electronically. When you trade the E-mini, you are trading it on the Globex system which is the Chicago Mercantile Exchange's electronic order matching system.


What About Margin and Leverage?

Often, when I mention the words Futures and leverage together, people want to run because they think it's very high risk. That is not true at all. If you use and adhere to your protective stops, the Futures become one of the lower risk asset classes for two reasons.
First, the huge volume in the Futures markets we trade means very little slippage compared to other asset classes. Second, most of the Futures markets we trade are open close to 24 hours a day which means your overnight gap risk does not exist like it does in some other asset classes.

The Futures offer tremendous leverage which only becomes a problem if you have no self control. For example, on margin of less than $4,000, you can trade the 30–Year Bond futures or 10–Year Note Futures which are contracts worth $100,000 each. Below is part of a Futures XLT student's trading statement from March 18th, 2009. They took an XLT day trade and ended with a profit of $2,752 while only having $6,409 in the account that morning when they made the trade. They ended the day with $9,161 in their account. What this student does is what other XLT members do. This student keeps only enough money in the account to trade the position size that they want to and when profits build up, they take money out to live on, this is trading for a living. In the Futures markets, a little money in the account goes a very long way. The student sent this email with the statement.

Dear Sam

Just wanted to tell you about a trade I was in yesterday. I bought the ES at the low around 764... It went all the way up to 790... The lessons I have learned from you have not only provided fish....but with perseverance are making me a worthy fisherman. Words cannot express my joy and gratitude. You are a great teacher!

L. McHugh

Lessons From The Pros

The XLT program is for those who are serious about attaining an edge in the markets. Much like the XLT, the Futures markets are only for serious traders. They are certainly not complicated markets to trade. In many ways, they are structured in a very simple way with few yet important rules and regulations compared to other asset classes.

Whatever market you are trading, make sure you first and foremost learn how to trade. Each time you push the button to buy or sell, there is someone on the other side of your trade trying to take your hard-earned money. On the 18th, our student took home a profit of $2,752. This money was made because of an edge that allows the student to get paid from those who don't have an edge. It would be great if everyone could profit in trading all the time but that's not how the world works, unfortunately.