Day Trading Futures in Malaysia – Tutorials And Brokers

What’s Next?

Brief history

Before we look at how to get started day trading options and index futures, it helps to understand their humble origins.

Futures contracts are some of the oldest derivative contracts. They were born from farmers’ need to hedge against crop price changes, between planting and harvest. That’s why many futures that are still traded today, are livestock like cattle, plus grains like wheat and corn.

The futures market has exploded, including contracts for any amount of assets. You can now trade precious metals like gold, industrial metals like aluminum, stocks like the S&P 500, as well as treasury bonds.

Financial Derivatives

At first, the concept of the future may sound a little confusing, but they are actually surprisingly simple.

Derivatives are when a financial instrument derives its value from the price fluctuations of another instrument. So, for example, the value of a derivative linked to the S&P 500 is simply a function of price movements in the S&P 500.

The S&P 500 is effectively a cash index, structured into contracts that sell shares like stocks. Futures contracts have prices that go up and down like stocks. In fact, your futures chart may look similar to your stock chart, with opportunities to buy low and sell high.

 

Leverage

An important component, if you are trading futures, is leverage. This means you don’t have to pay the entire contract when you start trading. Instead, you pay a minimum upfront fee to enter a position. This initial margin depends on the margin requirements of the asset and the index you wish to trade.

Various

As a trader, it is important to know the nuances between different futures. Examples of trading futures vs stocks are different, for example. You don’t buy stocks, you trade standard contracts. Each contract has a set standard size that has been set by the exchange where it appears.

Suppose the contract size for aluminum futures is 50 troy ounces. One aluminum futures contract will see you control 50 troy ounces. If the price of aluminum moves by $2, you will see a profit of $100 ($2 x 50 ounces).

Terminology

Here are two terms that you will often come across and need to understand:

First Notice Day

The first futures day (FND) begins the day after an investor who has purchased a futures contract may be obligated to take physical delivery of the underlying commodity. FND will vary depending on contract and exchange rules.

Note that most investors will close their positions before FND, because they do not want to own the physical commodity.

Last Trading Day

The last trading day of oil futures, for example, is the last day that a futures contract can be traded or closed before delivery of the underlying asset or cash settlement. Typically, most futures trades result in cash settlement, rather than physical commodity delivery. This is because most markets are hedging or speculative.

You need to account for the unpredictable price fluctuations on the last trading day of crude oil futures, or natural gas futures, for example.

But before you start trading, you need to get a handle on the asset of your choice, because different future quantities vary.

 

 

The Best Markets for Day Trading Futures

We’ve touched on some of the assets you can trade, but what other options are there and which market offers the greatest potential to turn to intraday traders?

Many argue that the E-mini S&P 500 is the place to go. You can trade around $75,000 worth of shares with just $3,500 margin, making it easy for all traders. You will find the S&P E-mini futures are all traded electronically, ensuring fast execution speed and promising possibilities for automated trading software.

Alternatively, consider Nasdaq E-mini futures, Russel E-mini futures, and Dow futures. All offer many opportunities for futures traders who are also interested in the stock market.

Additionally, there are few other markets that offer the volume and volatility needed to turn intraday profits. Nuts, coffee, natural gas, Japanese yen, Euro FX, crude oil, and 10-Year T-Notes all deserve attention.

However, before you put all your capital on the line, remember that each market has its own attributes and careful analysis is required to uncover the right market for your individual trading style and strategy.

Why Trade Futures?

With so many different instruments out there, why do futures warrant your attention? Five very good reasons:

1. Low Cost

While the stock market requires significant initial capital, futures do not. You can open an account and start trading with less than $5,000.

The best part though, you don’t have to maintain that amount. You only need enough to cover the margin. Margin is usually around 3-9% of the full contract value, so you really only need a balance of a few hundred dollars.

2. Forward Transition With Underlying Assets

With options, you analyze the underlying asset but trade options. However, your profit and loss depends on how the option price changes. The underlying asset may move as expected, but the option price may remain stagnant. Futures, however, move with the underlying asset.

This means you can use technical analysis tools directly on the futures market. You don’t have to worry about complications with derivative pricing.

3. FINRA Pattern Day Trading Rules DO NOT Apply

If you meet the minimum requirements (using a margin account, trading the same security more than four times in a five-day period, etc.), you must keep at least $25,000 in your trading account.

As a day trader, you need margin and leverage to profit from daily changes. Thankfully, if you day trade futures, this rule doesn’t apply. This provides access to the market for thousands who would otherwise be unable to meet the strict requirements set by FINRA.

4. Zero Restrictions On Short Selling

As a short-term trader, you need to make the best trades, be it long or short. With no restrictions on short and long positions, you can remain impartial and react to your current market analysis.

While the stock market does not allow this. You are limited by the variable stocks offered by your broker. You have to borrow stock before you can sell it to make a profit. In fact, financial regulators enforce strict rules to prevent short selling, hoping to prevent the stock market from collapsing.

5. Reliable Volume Data

Because there is no central clearing, you can benefit from reliable volume data. Getting reliable volume data from forex traders is impossible, because forex trading is centralized, so no one has all the information. However, with the future, you can actually see the players who are interested, which allows for accurate technical analysis.

 

 

Weakness

While there are many reasons for day trading futures, there are two serious drawbacks.

1. Payment

It can be very easy to bypass the futures market. Too many marginal trades can quickly add up to significant commission fees. Therefore, you may have made many successful trades, but you may have paid a very high price.

If you have $25,000 in your account and trade one S&P E-Mini contract, you could pay anywhere between $7,500-$12,500 in commissions each year. That means you need at least a 25% return to break even. Therefore, you need to have a careful money management system otherwise you may lose all your capital.

2. Low capital

Trading psychology plays an important role in making a successful trader. But since you can start trading futures with minimal capital, you have greater psychological pressure to overcome. This is because you cannot afford to lose much. This pressure can lead to costly mistakes and can quickly see you pushed out of the trading arena.

How to Start Trading Futures

Day futures trading for beginners has never been easier. Technology has made brokers, accounts, trading tools, and resources easier to find than ever before. So, how do you go about the futures market?

Minimum Capital Requirement

It is one of the most accessible markets because you need less capital than you would for stocks, but more than you do for forex. Although there is no legal minimum, each broker has different minimum deposit requirements.

E-mini futures have low trading margins. With E-mini S&P 500 futures, you can find a broker that offers just $500. Therefore, you need $500 and enough to cover any trading margin and price movements in your position.

Margin positions vary from broker to broker, however, TD Ameritrade and NinjaTrader offer attractive margin offers.

Choosing Broker A

This is one of the most important investments you will make. Most day traders will want a discount broker, offering more autonomy and lower fees. What should you look for in a futures broker?

• Fees – Choose a broker with a competitive and transparent fee structure. With frequent trading, commission payments will soon pile up, so make sure they don’t eat into all your profits. It should also be noted whether they have any additional costs, such as withdrawal fees and penalties.
• Customer support – If you have a problem, you need a quick remedy. Every second can cost you money. So, check the reviews to make sure they offer reliable and fast customer service. Some brokers will offer 24/7 support, via call and online chat, in several languages. In addition, they will also be able to provide you with information on the day’s futures trading hours, including on president’s day, plus New Year’s trading day and Labor Day trading hours.
• Trading software – How good is the trading platform offered? Do they offer all the charts and technical tools you need to run your analysis? Do you have to pay for extra features? Also, does the software allow fast execution speed and easy navigation?

Before choosing a broker, you need to do detailed research, check reviews and compare features. For more detailed guidance, see our broker page.

Choosing the Future

Once you are up and running with a broker and have money in your account, you need to select a futures contract. When you do so, you need to consider several key factors, including volume, margin and movement.

Trade volume

Look for contracts that usually trade over 300,000 in a day. You will then know that you can buy and sell at the level you want, and there will probably be other traders there to buy and sell from you.

Some of the most traded futures contracts are:

• E-Mini S&P 500 (ES)
• Eurodollar (GE)
• 10 Year Treasury Note
• WTI crude oil (CL)

Once you have found a contract with a lot of volume, you need to consider the margin and movement to suit your trading style.

Margins have been touched. Depending on the margin offer, your broker’s offer will determine how much capital you need to enter the position. For example, crude oil will often require high margins, so you need a larger account to trade it.

Movement

Certain instruments are very volatile, going back to the previous example, oil. This means you need to take price movements into account.

Fortunately, you can establish a move by considering two factors: the point value, and how many points your futures contract usually moves in a day. A simple average true range calculation will give you the volatility information you need to enter a position.

To find the range you need just look at the difference between the current day’s high and low prices. Although, bearing in mind the futures market can decline in price, take today’s price action outside the price range of yesterday’s price. So what do you do?

• True high – Today’s high or yesterday’s (whichever is higher)
• True low – Today’s low or yesterday’s (whichever is lower)
• True range – The true high minus the true low

Now that you know the true high and low, if the bond closes one day at 90, then gaps open higher at 91, and reaches the intraday high of 92, then the true range will actually come out as:

• Really high – 92
• True low – 90 (yesterday’s close, which is lower than today’s low)
• Actual range – 92 – 90

Now you can identify and measure price movements, giving you an indication of volatility and improving your trading results.

 

 

Using These Factors

So, with an understanding of comparing volume, volatility, and movement among futures contracts, what should you choose?

The E-Mini S&P 500 futures offer a good starting point for new intraday traders. You can get margin as low as $500 and you have more volume than crude oil. You should also find you have enough action to make consistent profits, and you can start trading with just $3,000 in your account.

Crude oil is another profitable option. While it demands the most margin, you also get the highest drawdown to leverage. If you are looking for the biggest profits, many have found riches in the oil play. On the other hand, large price fluctuations also see many traders lose all their capital.

The final major instrument to consider is the 10-Year Treasury Note futures. You’ll get a lot of volume, though not as much as you would with S&P 500 futures. While there will be price movements, you won’t experience the volatility that you do with oil. Looking at the chart for 1 minute should give you a clear picture.

Strategy

Whether you are interested in day trading strategies for Emini futures or Dax futures, all the points and examples below are applicable.

Analysis

Once you are established and you have the market in your crosshairs, you need to use an effective strategy to make a profit. Whatever strategy you decide on, you need to use fundamental analysis. Charts and patterns will help you predict future price movements by looking at historical data.

Your initial analysis though will help you identify the factors that affect your instrument’s performance. If you’re going to trade in Treasury Bonds, for example, you’ll want to analyze the underlying factors that drive bond prices. You may want to view economic activity and policy, supply and demand, investor sentiment, and stay in tune with recent news.

If you want to start day trading wheat futures, you will look at other factors. You may want to go over weather reports and find information on crop yields, alternative seeds, and transportation costs.

Risks & Examples

The best strategies take risk and shame into account rather than trying to make huge profits on minimal trades. Below, examples of tried and tested strategies have been outlined.

Example

Let’s say you have $8,000 in your trading account and you’re aiming for a 55% win rate. You want to risk only 1% of your capital, so $80 trade. To do this, you can use a stop-loss. You will place a stop-loss order five ticks from the entry price, and a target nine ticks away.

Therefore, your risk on the trade could be five ticks x $13.50 = $67.50, which is less than your maximum risk of $80. You should also have enough to pay any commission costs. If you can make that reward on 55% of your trades, you will be left with a respectable monthly profit.

If you increase your risk rate to 2% (which some traders do), you can trade two contracts and potentially double your profit. However, get it wrong and you will pay a higher price.

Scalping

Another futures day trading strategy is scalping, which is used by many to reap handsome profits. The idea is to limit your losses to just one or two ticks while taking any gains, almost as soon as you get them. You can also use the spread, which is the difference between the bid-ask price, to make a quick profit on both sides. This makes scalping easier.

Scalping requires a high volume of trades, but if you have the time, it can help you minimize losses while maximizing profits.

As you can see, there is significant profit potential with futures. However, day trading oil futures strategies may not be successful when used with Russell 2000 futures, for example. So the key is to be patient and find the right strategy to compliment your trading style and market.
For more detailed guidance on effective intraday techniques, see our strategy page.

 

Tips

Turning a consistent profit will require many factors coming together. You need to invest time and money to find the right broker and test the best strategy. To make the learning process smoother, we have collected some of the futures trading tips.

• Always have a plan – You need to be prepared. A trial and error approach will soon see your account balance hit zero. So your strategy fights the market until you’ve turned it into your own art form.
• Stay disciplined – Too many traders fail because they can’t keep their emotions in check. If you have proposed your plan, you know it will work, so don’t be afraid or greedy. Let the math guide you and stay disciplined.
• Be careful with margin – While global futures trading margin can help maximize profits, don’t let yourself get drawn in too deep. Keep your risk low and your margin minimal and you shouldn’t lose so much that you’re out of the game for good.
• Practice first – Whether you trade futures or silver commodity futures, a practice account is a great place to get to know the market and develop a strategy. In addition, the futures trading simulator is funded with virtual money, so you don’t have to risk real capital until you feel confident. See our demo account page for more information.
• News – Your instrument may rise or fall in price in response to news announcements. Therefore, you need to have your ears on the ground for anything that could affect your position. Some reliable sources include Yahoo Finance, CNBC, and Business Insider.

For more detailed guidance, see our tips page.

Education

The most successful traders never stop learning. The market changes and you have to change with them. To do that, you need to use the many learning resources around you. So if you’re thinking about day trading futures, consider:

• Books – Get detailed strategies, plus hear stories and advice from some of the world’s most successful traders. Click here to find some of the best books for day trading futures.
• Blog – Stay with market trends as traders give their perspective on online blogs. They are just a great place to get great futures day trading tips.
• Courses / tutorials – Learn technical analysis and new strategies from successful traders. In addition, you will often get advice on future trading signals and the best indicators for your chart setup.
• Videos – Day trading oil futures videos, for example, allow you to follow the experts as they trade and get useful tips.
• Pdf – They are perfect for opening while trading, allowing you to get accurate chart setups and apply strategies in real time. For example, consider David Bennett’s day trading grain futures PDF.
• Trading room – The futures day trading chat room is an excellent source of information. You can follow others as they trade while asking them questions and benefiting from top tips. Any major day 5 trading room on Google is worth exploring.

Tax

Regardless of whether you are a single stock futures or Vix futures, you still have tax obligations to meet. Failure to take on those responsibilities can cut into your bottom line. So check out our tax page for more information.

Can You Day Trade Futures?

Yes you can. But as the success rate of day-ahead trading proves, it won’t be easy. First, you need enough startup capital to not let early mistakes blow you out of the game. You also need a strong risk tolerance and a smart strategy.

In addition, you need to be prepared to invest time and energy in learning and using the many resources outlined above. Do all of that, and you could be in the minority turning an attractive profit. It totally depends on you.