5 Things to Know Before You Trade Futures


Prior to trading any futures market, you should do a reasonable amount of research to get information about how that market works. Knowing the characteristics of the market and the requirements of your broker can make you more successful and give you more peace of mind about the positions you are trading. What exactly does that mean? It means finding out several things including:

1. What are the normal trading hours for the market?
2. Does the market trade extended hours?
3. What are the minimum price movements (ticks etc.) for the market?
4. What is the minimum margin requirement to hold your position?
5. How long does the market close between normal and extended trading hours?

Unlike stocks, many futures contracts continue to trade after normal stock market trading hours. E-mini Dow and E-mini S&P contracts offer this. Depending on how you look at it, this can put you in a position to take advantage of continuous price movements, or put you in a position to be exposed to increased chances of experiencing losses. I personally feel that contracts with liquidity, tight spreads and extended trading hours are more beneficial because you don’t have to wait until the following morning to see where prices are.

You should also understand the minimum price movements of the futures contracts you trade. As of this writing, a minimum price movement for E-mini Dow contracts is approximately $5.00 every time there is a change in price, while E-mini S&P contracts are $12.50. Knowing this can also help you pick which contract fits your account size and comfort level.

Another thing you should know before you trade futures are your broker’s minimum margin requirements. You should also make sure you verify with your broker, to make sure you understand their margin requirements to trade, and to stay in a trade. Different futures and commodities brokers will probably have different margin requirements, and many brokers will have much smaller day trading margins if you decide, not to hold your positions overnight.

You should also make sure that you know how long the market closes for your contracts. Some contracts like the E-mini S&P trade almost 24 hours a day, with a small break of just a few minutes before the contract continues to trade throughout the night. Other contracts may stop trading for several hours, or may not resume trading until the following morning.

One of the keys to successful trading and peace of mind is to make sure that you understand the basics of the markets you trade, beyond just analyzing price and trends. Knowing these things before you trade futures will give you peace of mind and more confidence about the futures and commodities you trade.

I hope that you will be more successful by knowing these 5 things, before you trade futures.

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