Featured Article

Why Trade Futures?

samseiden
Sam Seiden
Online Trading Academy, Chief Education, Products, and Services Officer

There are many quality futures markets around the world. We cover and trade most of the big ones at Online Trading Academy, both in our beginner Futures class, the Futures Extended Learning Track (XLT), our graduate online trading room, and the Mastermind Community inside Power Trader Nation. Below are some but not all of the Futures markets we offer trading education on at Online Trading Academy.

seiden fig 1Figure 1

For active traders, the favorite and most popular futures markets, however, are the Equity index futures. While they all move in the same direction, there are differences in them that allow traders to match these markets to their personalities. During an XLT lesson, we spend time going over what these markets are, who should be trading them, and why. Below is a small portion of that information in hopes that you will make the safe and beneficial choice for you should you ever decide to trade these markets.

What are the Equity index Futures?

Equity index futures are designed to trade in relation to a specific equity index which are comprised of a basket of securities. These products allow traders to speculate and hedge risk associated with these markets.
Why Equity index Futures?

The following is a unique combination of features that offers retail and institutional traders fantastic opportunity:

  • Significant Tax Benefit
  • Advantages of Stocks & Mutual funds combined
  • Lower Margin costs
  • Low Commissions
  • Highly Liquid Investments
  • Huge Volume
  • Transparency
  • Near 24-Hour Trading (except for a 15 minute period for settlement)
  • Hedging
  • Portfolio Diversification
  • Lower risk than stocks (reduced overnight gap risk)

The Markets:

S&P Mini

  • Very popular
  • Highest volume / Most liquid
  • $50.00 per point per contract (Example: If you buy 1 S&P Emini Futures contract at 1205.00 and sell it at 1210.00, you made $250.00)
  • Represents a basket of stocks (S&P 500)
  • Very orderly market because of its high volume
  • Ideal for the more conservative trader

NASDAQ Mini

  • Solid volume
  • $20.00 per point per contract
  • Represents a basket of NASDAQ stocks
  • Orderly market but larger swings partly because of lower volume than the S&P

DOW Mini

  • Low volume which means large swings in price, very volatile
  • $5.00 per point per contract but don’t let that fool you, it is volatile
  • Represents a basket of Dow stocks
  • Because of low volume, you may consider doing your analysis for this market on the S&P chart

Russell

  • Low volume
  • Popular because of its price point, this is not a market for conservative personalities
  • $100.00 per point per contract
  • Represents a basket of Russell stocks
  • The combination of low volume and the high price point means a big money, fast moving market (not for the beginner)

DAX

  • Similar to the Russell
  • Lower volume
  • Traded on the Eurex Exchange
  • 25.00 Euros per full point, per contract
  • This is a big money market that can really move so beginners beware

FESX

  • Saving one of the best for last…
  • Super high volume on a 100% electronic exchange (Eurex)
  • 10.00 Euros per point, per contract
  • For those in Europe, this is a great market to trade

For more information on these and other futures markets, see the following websites:

www.cmegroup.com

www.eurexchange.com

Once you have an idea where prices are going in a market (supply and demand) and desire to place a trade or investment to take advantage of that move, the next question is this: What trading/investment vehicle offers me the lowest risk, lowest capital requirement, highest reward, and so on? In the world of equities, there are MANY different ways to take advantage of a move in the market. Knowing the details of the different markets helps you make the best decision based on your individual goals and requirements.

Have a great day.

– Sam Seiden sseiden@tradingacademy.com

Disclaimer
This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.