Once you have set up a funded futures trading account, you may wonder which markets are best suited for day trading. If you’re new to futures trading, consider the following three key factors when selecting a market:
Volume #
Volume plays a crucial role as it indicates the liquidity of a market. Higher volume leads to tighter bid-ask spreads, reducing the risk of slippage. Look for futures contracts that trade at least 300,000 contracts daily to ensure sufficient liquidity. Examples of heavily traded futures contracts include the E-Mini S&P 500 (ES) and Crude Oil WTI (CL).
Margin #
Margin requirements vary between different markets and brokers. The margin determines the amount of capital you need to allocate for trading a single contract. Some markets, like crude oil, often have higher margin requirements, while others, such as the E-mini S&P 500 contract, popular among day traders, may offer smaller day trading margins.
Movement #
Volatility levels differ across instruments, and your trading strategy may dictate the desired range of volatility. To assess an instrument’s relative volatility, you can calculate its True Range. This involves finding the daily high and low and subtracting the high from the low to determine the True Range in ticks or points. Analyzing the True Range over several days or using an Average True Range (ATR) indicator can provide a clearer understanding of the instrument’s typical movements and identify any outliers influenced by economic reports or geopolitical events.
By considering volume, margin requirements, and movement, you can gain a comprehensive view of different markets. Ultimately, the best markets for day trading futures will depend on your specific trading preferences, risk tolerance, and trading strategy. It is advisable to conduct thorough research, seek guidance from experienced traders or brokers, and consider demo trading to gain practical experience before committing to any specific market.
Getting the Big Picture #
Now that you have a grasp of the significance of assessing volume, volatility, and movement, you might be wondering which option to choose.
For new traders, the E-Mini S&P 500 futures might be a good starting point. Margins can often be as low as $500 and the ES has more volume than crude oil. And because it is so widely traded, you the ES might have just the right amount of market movement, it may provide plenty of market opportunities throughout the day.
Crude oil could be another viable option. It offers substantial volatility and volume for intraday trading.
However, it’s crucial to acknowledge the associated risks. Both the ES and CL contracts are prone to significant price fluctuations, especially during instances of “event risk” such as unexpected economic reports or geopolitical events. It’s important to exercise caution as substantial losses can occur within a short period. Nevertheless, it’s worth noting that this applies to almost any leveraged futures contract. Therefore, it is essential to approach trading with wisdom and prudence.
