Futures Trading
Futures Trading: Think of this as a "quick blurb" designed to help a trader better understand the futures trading markets.
This is by no means comprehensive--there are entire books written on the subject of futures trading. However, to an individual who has traded only stocks, the futures trading markets are probably a mystery and maybe even a little menacing. Yet for traders who have already learned the importance of strict money management, they will appreciate what futures trading has to offer. Typically, once people try futures trading, they simply stop trading stocks. The ease of entry on both the long and the short sides, ability to focus on a few markets instead of hundreds of stocks, and the lack of market maker games makes them a refreshing change to the world of stocks. Let's review.
First off, there are many types of futures trading contracts. A person can trade anything from Copper to Coffee, from Stock Indexes to Silver, or from Pork Bellies to Palladium. It's not important to worry about most of these futures trading contracts in the beginning, but it is important to understand a core group of these futures trading contracts and how they work. I know many traders who only focus on one of these futures trading contracts and are doing quite well, thank you. However, it took them time to find the right market, and the right setup within that market that was best suited to their personality. This can be an often long and perilous journey, but once they found the right fit, they never looked back. These are the main futures trading markets that I follow and trade outside of stocks:
- Mini-Sized Dow or Mini Dow (YM)
- Emini-S&P (ES)
- Emini-Nasdaq (NQ)
- Emini-Russell (ER)
- Full Sized 100 oz. Electronic Gold (GF)
- Mini-Sized Gold (YG)
- Full Sized 30 Year Bond (US--Pit, ZB--Electronic)
- Ten Year Notes (TY--Pit, ZN--Electronic)
- Soybeans (S)
- Corn (C)
- Wheat (W)
- Euro Currency (EC)
- Crude Oil (CL)
- Mini Crude Oil (QM)
- Various Single Stock Futures
Note that some of these are "mini" and some of these are "full sized." The letters in parenthesis next to the name represent the futures trading symbol that is used to get a quote. There are full sized contracts on the Dow (JH), S&P 500 (SP) and Nasdaq (ND) but these are pit traded and I prefer to trade the smaller "mini" electronic contracts. Why? Because orders from the pit take longer to process and market orders often result in fills that, in the real world, would result in a search warrant.
The minis on these stock indexes have huge volume and great liquidity. The new Full Sized 100 oz. Gold (GF) contract is a refreshing change from the pit traded Gold (GC) contract. Again, I much prefer to trade the electronic version of these futures trading contracts over the pit traded versions. There are also Mini-Gold (YG) and Mini-Silver (YI) electronic contracts which are good to trade. Pit traded products like the grains are fine to trade. However, the trend is that the volume is flowing out of the pit contracts and into the electronic contracts. The electronics are where the action is, and that is where you want to be futures trading.
To get futures trading charts on these, a day trader will have to instruct their quote vendor that he wants to add quotes from the CBOT (for the mini-sized Dow, Bonds, Ten Year Notes, Gold, and Grains), CME (for the emini S&P, emini Nasdaq, emini Russell and Euro), and NYMEX if they want quotes on oil and pit traded gold. There is an "emini only" quote feed that is cheaper, but a trader will want the full version to get quotes on the full-sized futures trading contracts. For both full versions of the CME and CBOT it will cost around $80 a month. By the way, the futures trading word "emini" is branded by the CME (Chicago Mercantile Exchange), which is why the YM is called the "mini-sized Dow" instead of "emini Dow" because it trades on the CBOT (Chicago Board of Trade), which is a different exchange.
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