[0:00]I consistently day trade using futures for just 60 minutes every morning, and I'm able to consistently find profitable trades. In this video, I'm going to go through the whole laundry list of things that you need to know and understand about futures and how they work. I'm going to just explain you the basics of how futures work, how they're priced differently compared to other assets. Why they're actually just better than other assets, if you ask me, I've traded everything and I find futures to be the best. What's margin, how it works, what's overnight margin, intraday margin, how they're priced. What is the best place to actually trade futures and we'll go through a lot of other things and even some tax advantages of trading futures over other assets. And so we're going to start with the basics and slowly build you up so after the end of this video, you will be able to have a trading platform and understand how futures work and to be able to start executing a trading strategy with it. Now, futures work differently than stocks in many ways, but once you understand them, it's very simple, just like trading a normal stock. If you buy it and it goes up, you make money and if it goes down, you lose money. For example, though, the big difference is when you buy let's say one share of Apple, you can hold that share as long as you want. You own a piece of that company and it will never expire unless the company goes bankrupt or is taken private. With futures, you aren't actually buying part of let's say a company like Apple, you are buying a contract agreement that's value is based on the market it's connected with. So for example, let's say you buy one futures contract in the oil market. The contracts value will go up when the oil price increases, and it will go down if the price decreases. The exact same way a share price of Apple would go up or down. So when it comes to the practicality of actually trading this, there is basically no difference. But the only thing is the futures contracts expire unlike shares. The length of a futures contract can depend on what market you're actually trading, but generally, it's one month or three months. This is the one reason why futures are shorter term trading asset, it's not something you hold for a long term. Most people like me, day trade using them, that's where the real advantage comes into play. The trading platform I'm using is called Ninja Trader. I've been using them for over five years now, and one of the nice things is they don't charge you to practice with live trading data right away, which most platforms do. You can check it out using the link in the description of this video or using this QR code. Now, technically, when you buy an oil futures contract, you are buying the ability to buy a thousand barrels of oil at a certain price. That's the nuts and bolts behind it, but in reality, you're never going to do that. You are just using this contract to get leverage of a thousand barrels of oil. Because this contract actually costs a fraction of the purchase price of a thousand barrels of oil, but you get the value increase or decrease of the million dollar value of the house, but you're only putting up a fraction of the total value in the down payment. Now, in the trading world, that down payment on the house is not called a down payment, it's called a margin requirement. Just think of it like the collateral that you need to put up for one futures contract of let's say oil. For example, now, if we buy one futures contract of the S&P 500 futures, which is a different futures market, this will take about $500 worth of margin. Your account will have $500 taken away as collateral, but when you sell the contract back, you get the $500 worth of margin back. Now, this isn't taking into the account the profit or loss that you made on the specific trade you took. So, when you see the price of the S&P 500 futures trading at let's say 6,000, it doesn't actually cost you $6,000 to buy one futures contract, compared to, you know, when you buy shares. It's actually based on the margin requirement at the time. Now, the market requirement will differ from asset to asset like oil futures to wheat futures, or from brokerage to brokerage and time of day. And so let me break down to you each one of those categories. First off, you have what is called intraday and overnight margin. So for example, the US stock market is only open during the New York trading session, which is 9:30 AM Eastern Standard Time to 4 PM Eastern Standard Time. This is the only time of day that you can trade stocks that are in that market. But futures, on the other hand, are open almost 24 hours a day, seven days a week. They technically close for a short amount of time after the New York session closes and over the weekend, but this is how the intraday and overnight margin difference is made. If you're trading, let's say, the S&P 500 futures during the New York session, when all other stocks are open, in that 9:30 to 4:00 window, you only are required to put up the intraday margin, which is generally extremely low. Compared to the overnight margin, which is any time the New York market is closed. So for the S&P 500 futures, and really any US-based futures, it's going to cost you a lot more to trade outside of that stock market open window. Now, these margin requirements can change based on brokerage. Some of the brokers have the more normal margin requirements, which can be roughly 5 to 7,000 for the intraday. But other ones, like Ninja Trader, which is the one I use, can have low margin requirements for, let's say, the S&P 500 futures. One contract can be $500 worth of margin, which is tiny for how much leverage and potential in profit that it gives you. But for almost all the platforms, the overnight margin is never reduced, which is generally double the intraday margin or around 15,000 for the S&P 500 futures. Now, these are the normal margin numbers. This can actually change when market volatility goes up. Because when the market goes crazy, brokerages will see that there is more risk, and so they'll ask for more collateral, basically. So for example, in the COVID 2020 market crash, the margin requirements were double or triple at times. But it only happens very rarely in extreme times like this, and so it doesn't need to be something that you're super aware of. And generally, you should have enough money in your account to cover the change. Now, another minor difference between futures contracts is you have ones like oil where you're gaining control over a physical asset. And if you held that physical asset contract to expiration and you used it, you would get barrels of oil. On other ones, like the S&P 500 futures or Nasdaq futures, they aren't actually based on a physical product, it's actually based on the index that it follows. So these ones are just settled in cash. But if you're day trading or even just holding them over a couple of nights, you don't need to be worried about having to deal with settling the contracts, because it's basically never happens.
[8:00]I've never had this happen to me over the, you know, five plus years I've been trading futures, and there's a couple ways you can protect yourself to make sure this doesn't ever happen.
[8:31]The first way is always have a stop loss in place, no matter what. Never move it farther away, first off, increasing your potential risk once you're in a trade, because if the market opens and goes against you really quickly, this stop loss will get you out of the trade as fast as possible, not allowing you to lose more than you were planning. You can get something called slippage where the market's moving so fast. Even a market order won't get filled at the exact price. This doesn't really happen that often and in the end, it's not actually that much money that it will slip. You might lose a bit more than you wanted to, but it won't be a crazy amount. The other way for this to happen, and let me show you on a chart real quick, is if you traded and held through the futures market closing and then opening. And so essentially what that would look like is if you entered in, let's say, a buy here, expecting the market's going to go up, and the futures market closes for an hour after the trading day every day. And so you can see here, if you entered in a trade here, the market closed right at this price, and then opened all the way down here, and if your stop loss of let's say risking $500 was right here. And let's say your account, you know, is $1,000 and you're only planning to risk a couple hundred here, well, the best price you could have done was all the way down here, which would have been a couple thousand dollars worth of loss. And so that's how you could have had an over exaggerated amount of loss that could theoretically blow your account up. So that's the biggest thing that I would do is never hold futures into an overnight close or even over into the weekend when it closes. Basically, when it closes and opens again, that's your big window for having an extreme loss that you can't get out of. And also, this happens a lot because news or, you know, stock earnings will come out right after the market closes. And so when it opens again, and you know, let's say Apple comes out with a really bad earnings report, because Apple is a big part of, let's say, the S&P 500 futures, or if you're trading the Nasdaq futures, it'll make a big drop and a gap like that, we saw in the futures contract that you're trading and you'll take a massive loss. Lastly, the only fees that come with trading futures is generally kind of some kind of routing fee, and then the commissions that the trading brokerage you use. Generally, the routing or trade-in fees are fixed and will be same across the board, and then futures commissions are based on the broker that you're using. But because there are so many big platforms out there, and they're all super competitive on the commissions, you're not really going to find much of a difference throughout them. There's also no interest or fees with the margin that you use. That's for different types of margin accounts, generally trading like stocks on margin. Also, don't get confused with other types of margin in trading and investing that can have interest rates on the margin that you use. That's when you're essentially taking a loan out. For this, the margin is more of again, think of that like collateral or down payment you're using.
[12:24]And so really cool about futures is the tax benefits that comes with it. Now, I mainly switched to futures because of the simplicity. It's exactly like trading stocks and it's not complicated like options, but it gives you the leverage that options allow. So, it's kind of the best of both worlds. You know, you buy it, it goes up, you make money and you can do it with a small account and get super crazy leverage. And then as well on the back end, when it comes to tax season, there's a really cool rule that is applied to it. Now, of course, I'm not a tax professional. This is kind of just what I know from doing it myself and kind of on and what's out there just based on the internet. And so when it comes down to it, 60% of your profits is in a way lower tax bracket, and then 40% is in your normal tax bracket, you know, what you make in that year as a normal like, let's say W2. And so what this allows you to do is even though you're day trading, it counts in a way as a long-term investment or asset. And you essentially just get to keep more of the money you made. Compared to everything else, you have to hold it for a whole year before it becomes in that long-term capital gains category. And so now let's go to Ninja Trader here and I'm going to practically show you some of how this looks like on a real chart. And so this is looking at the S&P 500 futures, the ES futures. We're looking at the main contract, not the micro smaller version. This is the full contract, and you can see over here on the left side, is this is the price movement, and it's going up in 0.25 increments. Sometimes it might jump a little bit more because the market's moving pretty quickly right now, but generally, it'll move up by 0.25. And then if I just click right here, buy market, at one contract, you can see that the dollar amount is going up or down in 12.25 increments. And if it moves up one point in my favor, that'll be about $50. And so you can see just looking at, we're looking at a one minute chart right here. The dollar movement per price is very, very large. We're trading one contract here and you can see over this one small candlestick, I'm already up like $200. And so you can imagine if the market just moves up right here, that's probably like $1,000. And this move right here that took about 25 minutes, with one futures contract would have been probably like $2,000. And so you can see the leverage of that money comes into play massively. You know, this cost me $500 worth of margin, and you can see that I'm already basically up $500. And so the leverage there that you can get on a tiny account to potentially make a huge amount is really, really big with these contracts. But again, you can see on the flip side, that $500 that I was up has all of a sudden seemed to start to evaporate, right? And so again, leverage can work against you or for you. And so that's where you want to, then, go into, if I then just, you know, this is just a demo account, I'm not going to just be goofing around on real money here.
[15:53]Um, if we go into the micro futures, you can see it looks the exact same chart. But if I buy one contract now, it's a tenth of the size. It's going up or down a dollar and 25 cents. And so this is the exact same thing for everything in terms of if you jump into a micro futures contract, it allows you to now start with a super small account, and these movements for a small account are a lot more manageable. You know, instead of risking, you know, $500 for a small swing, which can seem huge. I could put, you know, enter in here and put my stop loss down here, and I could be risking $20. And I could, you know, my target could be $30. And so this is how you can, this is how you can easily increment your size as you go up. And so you can see this movement here is, you know, now I can target maybe $200 worth of profit for, you know, a $50 or $75 risk as you slowly increase your size when you're becoming profitable. And so the best way that I have actually found to trade futures is actually looking for reversals on a one-minute chart. You can trade futures on a one-minute, a five-minute, or even an hourly chart. Again, it's all about trying not to hold through overnight and mainly just sticking to day trading, that's really where the power comes in. You can hold something for a couple of days, but again, it opens you up to that risk of having, you know, those large drops from, you know, the market closing and then opening up again with news in between. But what I've found to be super powerful is literally in the first 60 minutes every morning, I just watched the US stock market open. That's when it is super volatile, has a lot of potential swings like this. And you can see this swing right here in the last, you know, what we were just looking at, that could be a couple thousand dollars, right? If you're trading large size. And so you can easily make a strong amount of money trading once you become profitable, with this strategy in literally just 60 minutes in a day. It's what I have traded for a while now and it's literally all I do. And so to walk you through that now, what I do every morning, I literally just come in, I look for key areas of, you know, support and resistance. And you can see here, the market bounced right here, and so that's why I'm kind of thinking, okay, well, if it comes down here again, I want to see if we'll bounce again. And so that's kind of the first thing that I always look for in this strategy is looking for the market to bounce at a key level. You don't want to just be randomly thinking, okay, well, it'll go here, it'll go there. You know, that's when you start to become reactionary to the market, and you want to actually have a plan and wait for the market to fit that plan. I've realized that over time that that's really the way to become profitable, and the other part of that is just find one strategy and one pattern that works. You don't need to find 10 different strategies and be trying to capture, you know, every move in the market, because like you just saw, when it comes to the sizing and scaling, these numbers in a way can become infinitely huge, right? You could be literally risking $10,000 on a trade and make, you know, $40,000 in 20 minutes. Now, that seems mind-blowing, because, you know, when I first started, I was risking literally like $25, $50. But now in this trade right here, I'm risking something like $500, and you'll see the potential can go really fast once you kind of get this in play. And so the next thing I like to look for is you can see the market came down here to this level, and it actually broke this downtrend. So that's kind of the second thing I like to look for, when you're looking for reversals, you need to make sure that the downtrend is broken. And so what I've done here is I've kind of confirmed that after this trend was broken. And so it's starting to show some strength, some bullish candlesticks, and I like that for getting in on a trade, betting that the market is going to go higher. Now, kind of the last couple things I like to look for is I want to see the market kind of start to show kind of a bottoming pattern. Right here it's basically making higher highs. And so I like this as this candlestick was a really, kind of a big bearish candlestick, attempting the market to go lower. And it failed here, based on these candlesticks, and so I like the idea of saying, hey, I want to get in long above this candlestick right here, betting that the market is going to go higher. And so I put what is called a buy stop order above it. If the price of the market touches this price, put in a market order. I don't care where you fill me at, just get me in the market, and most of the time, you can see it literally just filled at that exact price. But sometimes it can, you know, fill you right here because the market can move pretty fast, but that is the order I like to enter in on most of the time. And, you know, you can use a buy limit order that'll get you in below or exactly at that price. But the problem with that is, well, for this example right here, well, the market kind of took off here, and you would have felt a lot of FOMO, and you would have because you would have missed out on the trade. And you would have had to wait for and hope that the market comes back down and fills you at that price. And so you can see here quickly, just over a couple of candlesticks, I'm already up $1,000 on this trade, risking, you know, I think 5 or $600. And so this is where the power comes into play is I'm trading four oil futures contracts here. And you can see it's moving in that 0.01 increment, that penny size. Compared to the S&P 500 futures that we were just looking at, was actually moving in that quarter of a point size, that 0.25. But you can see here clearly that the money is a lot more. And so for me, my strategy is I like to kind of get in when I see, you know, basically, you can easily see here is there's a lot of momentum here. It started to slow down by essentially just seeing that the market kind of started a chop here. And then I look for a couple of key factors, jump in and catch the momentum to the other side. And so I moved my stop here to break even. And then as this starts to kind of get pretty accelerated here, I like to use kind of the idea that, hey, okay, I'm going to give it a little bit of wiggle room, but I'm going to move my stop up if it pulls back because, you know, I'm up about $2,000, and you know, you want to let this thing run if it's going to run. But you also, you know, you can see like, just as it pulled back right here, it can reverse very, very quickly too. And so that's where I really look to, you know, manage my trades, but again, that's come with a lot of practice and experience trading this. You know, my target here, you can see now that we are getting up to here, you can see we're kind of in a support level that I've drawn from previously in the chart. And that's where I'm going to expect things to slow down. And so you can see I've moved my stop loss up here, it's, you know, we're up a lot more money now. And this is where kind of the power comes into play of using technical analysis with futures is you have that leverage and you have that ease of getting in and out of the market, but you also have the simplicity of, you know, you're not having to deal with the complexity of options and other factors that come into play with other assets. And so to just to close this out, you know, I'm not going to go into my strategy too much here. I have a lot more videos on that, but I pretty much get knocked out right there. So no matter how you're planning to start trading, even if you're planning to start prop firm trading, I highly recommend demo trading first. The fees for prop firm training can be really expensive, if you're not able to be consistently profitable right away. That's why it's smart to use Ninja Trader first, and once you're more comfortable, then switch over to prop firms. Again, you can check out Ninja Trader in the description or using this QR code, and if you want to just learn more about my strategy, I've been talking about here, check out this video right here.
