ES Emini Day Trading: The Basics-What is a Financial Futures Contract
This may sound like a ridiculously simple subject to write about, but I suspect you would be shocked by how many traders, if pressed, could not come up with a plausible answer when asked to define a futures contract. For the purpose of this article I am going to confine our discussion to financial futures contracts, though there are futures contracts that can be purchased on a wide range of commodities.
Let's start by saying that a financial futures contract is a derivative, or an agreement to buy or sell something in the future. Let's contrast that definition to a stock, which represents direct ownership, or equity, in a company or other legal entity. If you buy a futures contract, you are basically agreeing to buy something that a seller has not yet produced for a set price. Let's be clear here, though, because you purchase a futures contract does not necessarily mean you have any plans for taking delivery of the underlying security for which you purchased the futures contract. It is normal for buyers and sellers in the futures market primarily enter into futures contracts to hedge risk or speculate rather than to exchange physical goods.
We will ignore the hedging aspect of futures contract because that would be a rather lengthy article in and of itself. No, as traders we are buying and selling futures contracts as a means of speculation and hopefully profit from the speculation. In every futures contract, everything is specified: the quantity and quality of the commodity, the specific price per unit, and the date and method of delivery. The "price" of a futures contract is represented by the current price of the underlying commodity or financial instrument that will be delivered in the future.
The daily price of financial futures contracts (and all futures contracts, for that matter) change throughout the course of the day in a manner very similar to price movement on the stock market. In the case of financial futures contract, there are four months that financial futures contracts mature (the year is split into four equal quarters, or three months) and traders buy and sell financial futures contracts based upon what they feel the price of the underlying security will be on the month the financial futures contract expires.
Most of my articles are written about the ES Emini futures contract. I should point out, at this juncture, that an emini futures contract is one fifth the value of a full sized contract. The ES is a mini sized version of the larger S&P 500 contract.
Why would the exchanges create emini contracts?
The answer is simpler than you might think...they developed the mini contracts so that individual investors can participate in the futures market. The emini essentially allowed futures contracts to be traded by individuals where before they were primarily traded by wealthy individual traders and institutional traders. The emini opened up an entire area of investing to the small investor and these markets have been growing at an unprecedented rate since their inception. The ES emini contract now trades more than a million contracts a day. I think at this point I should also point out that futures trading is based upon leverage.
What the heck is leverage?
When you buy a stock you are expected to pay the entire stock price within three days of purchase. For example, if you purchased 100 shares of stock a for $10/share, your stockbroker would expect payment of $1000 with three days of you order. This is not so with futures contracts where you typically deposit money to cover margin requirements. The margin on a ES emini contract ranges from $500-1000 and you are actually controlling 5 times the value of the futures price.
Before we get to far into the specifics, lets close with a basic understanding of a futures contract. It is an agreement between two parties (facilitated by the exchange) to deliver an equity of pre-determined value at a certain time. Futures trade very similar to traditional equities and have a high degree of liquidity.
I plan to continue with some of these futures basics in the coming days, so look for articles of a similar vein to help clarify some of the questions you may have about the nature of futures contracts.
Questions and Answers
Day trading does not necessarily have to do with stocks and you really don't need to have a big trading account to succeed at it. But you need to choose a proper trading instrument and the best one for this purpose seems to be emini futures.
Slippage occurs when you sell or buy at a specified price and your actual execution price is higher or lower than your specified pricel. Even more likely, slippapge can occur when you have a stop price specified and the executed stock price is higher or lower than you intended stop.
Your margin account and the management of your margin account is one of the most important aspects of trading. I talk some about initial margin requirements and mark-to-market margin calculations and give some info about brokers responsibility in margin use.
Emini contracts are derivatives of the major indexes and have specific rules and requirements for rollover and trading. Your awareness of these regulations and the nature of index futures is essential.
There are a variety of trading instruments that lend themselves to day trading, but none compare with the emini futures contract. I have a look at the margin requirements and money management that can make you a successful day trader.
The growing Indian market is attracting investors on the ground of the promising and assured return. The online trading is very popular these days and most of the people prefer it for quick money.
Learn the fundamentals of committing cash in Stocks, Ties, Common resources, Merchandise, Actual estate We create Getting Inventory Industry straightforward for you with a comprehensive guide to committing. Any effective stock market buyer must be acquainted with the fundamentals of stock market committing.
Online share trading is one of the most popular financial markets in the world today; however, any people are hesitant in starting due to not knowing a lot about it. This article will help explain what online share trading is all about, how you can get involved for a low initial investment and what to consider before, during and after trading.
The stock market is mostly used to create money. . I am sharing my investment strategy as a retail investor. Most financial experts recommend investors to initially contact a financial advisor. Able to provide advice, it can ensure that the money an investor get a good return or not.
This article has discussed about the importance of Stop orders. Stop orders act like the life jackets
It is not unusual to hear individuals ask about trading the "high probability" gap trades. It seems that there is a perception (by some traders) that e-mini gap trading falls into the sure-fire trade class of trades. Note: I have yet to locate a sure-fire trade in several decades of trading.
I've been writing some about trend lines lately and noted my observation, in several of the articles, of the declining use of this valuable charting tool. I don't have any illusions that a couple of articles by a relatively unknown author will have any effect on the use of these lines; but if just a couple of traders see the value of trending lines and e-mini trading, then I suppose I have done my job.
I like trading indicators that help me understand e-mini trading in real time. I can think of no better real time trading experience than watching price action move toward a known area of support/resistance (SAR) and evaluating what the possible outcomes may be when price collides with support lines or resistance lines.
Given a choice of just one e-mini trading indicator/chart pattern I would select, hands down, support and resistance. In my little world of trading, support and resistance (SAR) reign supreme.
Trend breakouts and breakout volume share two important factors (among a list of other important variables) in shaping the likelihood of a successful trend breakout or breakdown. For obvious reasons, volume in a specific direction is a key ingredient in a successful trade.
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