Transition to Futures

Quote from ksonsinc:

... I started with $2500 trading Futures i went it up to $5000 in 1 1/2 week and i was already thinking if things keep up that way i should start looking for a house or a apartement to buy
But my 1 loss holding 7 contract on YM going again me like 40 point wiped my whole account ... :)
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Hi, ksonsinc, this is Schaefer here. Could you elaborate a little bit more on how 40 points against, you wiped out your account with 7 contracts. What was the account size, and most importantly, the performance bond per contract?

Thanks, and Happy New Year bud,

Schaefer
 
Quote from Dave Mitch:

Hi All,
Dont mean to go off thread at all but can someone explain 'what' is the purpose of a futures contract on say the Dow or the S&P ; I understand how to make money from them, I just struggle to get my head round 'why' this type of product exists. I mean its obvious why there are futures in oil, gas, wheat & other commodities etc but what purpose does an e-mini YM or ES contract have in 'real life' ( apart from traders to make, or lose, money of course)?
Thanks in advance
Mitch
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Mitch - it can offer a way for mutual funds, pensions, etc to hedge their positions. Let's say you run a long only mutual fund (as most funds are). To hedge your long positions, you can short a number of futures contracts to have 'portfolio insurance' in case the market moves against you. The same can be said of options as well.

Once it became very easy to daytrade and run computer programs on futures, it then became a matter of $$$. Would you rather trade ES contracts at $500 margins or thousands of shares of the ETF?
 
if you are going to (daytrade) futures successfully, here is my input

always determine your stop BEFORE your entry, and set it upon entry (or even before)

period

stops are NOT discretionary, and don't use "mental stops"

it is perfectly acceptable to move a stop IN (trailing it), but NEVER widen it.

period

set a maximum amount of contracts to trade and do not ever go above this level. some brokers, trading systems etc. will allow you to set this mechanically. a very good idea

be patient, wait for your setups.

keep a DETAILED trade log, which should include psychological as well as technical aspects of the trade

i also want to comment on the person who said he didn't hold futures overnight because they trade overnight (unlike equities) and thus this was somehow more risky

this is absurd. the fact that they trade overnight, makes them LESS risky, because you can set stops to trigger. with the stock, it would simply be a gap

think about it.

if i am long YM (dow futures), and a bad event happens overnight (like the UK is hit with a nuclear bomb) and the futures start tanking, my stop will be hit and im out.

if i was long an equivalent size of dow via a stock (ETF) like DIA, i would wake up to find my position had lost 50% of its value since my stop wasn't hit overnight.

ASSUMING the same "size" of course

if you are long 500 DIA, or one YM overnight, the same size of holding means the same "risk" except with YM you can have safety stopps set, and with DIA, you can't

although of course, you can use futures to hedge your 500 shares of DIA, like when the market tanks overnight, go short 1 ym

short 1 ym and long 500 dia would be neutral (obviously)

but the fact that futures trade overnight does not make them more risky. that is nonsensical.
 
W,

Great post. Some of this I know from trading equities but you do bring some new points that I didnt know.

Thank you.

Neet
 
Quote from whitster:

if you are going to (daytrade) futures successfully, here is my input

always determine your stop BEFORE your entry, and set it upon entry (or even before)

period

stops are NOT discretionary, and don't use "mental stops"

it is perfectly acceptable to move a stop IN (trailing it), but NEVER widen it.

period

set a maximum amount of contracts to trade and do not ever go above this level. some brokers, trading systems etc. will allow you to set this mechanically. a very good idea

be patient, wait for your setups.

keep a DETAILED trade log, which should include psychological as well as technical aspects of the trade

i also want to comment on the person who said he didn't hold futures overnight because they trade overnight (unlike equities) and thus this was somehow more risky

this is absurd. the fact that they trade overnight, makes them LESS risky, because you can set stops to trigger. with the stock, it would simply be a gap

think about it.

if i am long YM (dow futures), and a bad event happens overnight (like the UK is hit with a nuclear bomb) and the futures start tanking, my stop will be hit and im out.

if i was long an equivalent size of dow via a stock (ETF) like DIA, i would wake up to find my position had lost 50% of its value since my stop wasn't hit overnight.

ASSUMING the same "size" of course

if you are long 500 DIA, or one YM overnight, the same size of holding means the same "risk" except with YM you can have safety stopps set, and with DIA, you can't

although of course, you can use futures to hedge your 500 shares of DIA, like when the market tanks overnight, go short 1 ym

short 1 ym and long 500 dia would be neutral (obviously)

but the fact that futures trade overnight does not make them more risky. that is nonsensical.
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As a Brit I can say the following, if "UK is hit with a nuclear bomb", then your limit stop has substantial chances of not going through at your requested price :) if at all, unless you attach a stop market order, which could get you out at any best price.
 
I always use stop markets intraday and overnight.

Good post by whister.

Moral of the story:

HAVE A STOP LOSS.
HAVE A SETUP AND PLAN.
TRADE SMALL UNTIL YOUR GOOD.
 
i have literally never even used a limit stop

in a "normal" market, i almost always get a fill on my market order stop (in the dow minis) at the price i set my stop at.

occasionally, i get one or two ticks slippage. oh well

this is preferable to having the order NOT fill and losing 100, 200 ticks etc. in some sort of black swan event.

the reason for the stop is risk management and capital preservation. so, in layman's terms, im not going to be a "dick for a tick" and save the occasional 1-2 tick slippage, but then risk several hundred ticks in a really bad selloff. that is not an acceptable tradeoff

on my entries and targets, i almost always use limit orders, though
 
FAT FINGER errors at night with thin volume can be brutal to overnight positions in INDEX futures.

We have seen this every so often. How do you avoid the horrors of the STOP server getting hit with a BIG order (error or some fool sweeping all the STOPS) ?


Think about this >>>>>>>>>>> most days during the next day, the previous close will be recrossed during the next days regular pit session hours. Now i have never researched that and if anyone feels up to the task maybe they could tell us the results. (ES)

My reasoning for avoiding the overnight stop server etc is quite simple. With todays smallish commissions it makes no sense in losing sleep over some silly trade. Daytraders make maybe a couple, one, maybe 5 trades a day with nice setups. OK, Why waste a good days, work and blow it all on some sleepy guy reading a penthouse mag in the am and throw in a fat finger error?

I NEVER carry a thing overnight, nothing ...never. Sleep at night and let the world blow up, why should you care? ... :D

PS, Futures in the Es are flat out fun to trade, i like trading with the big dogs............. WOLF, WOLF.......... :cool:
 
hog - I couldn't agree more. No point in waking up and starting your day seeing your stop was barely hit and now you get to start the day in the hole. I like starting each day fresh. The flipside is that if you have a position and exit at 4:15pm and had kept it on, you may have made a lot more money as well.

To me, it's just not worth it. I am out of everything by 4:15pm est.

And regarding stops Neet, I also agree that hard stops are the way to trade in futures. Just put the stop on and if it's hit, it's hit. And I personally never average down as well.
 
Funny he was trying to sell you on "hedge risk." Sure, if the whole world crashes your hedge of euro against those short usd are very safe.

Never trust a "broker," ever. I don't care your excuse, they are all slime balls trying to make a quarter off your dollar. This is 2006, not 1970.

Hedge risk is when you put on a position, then a hedger (me) comes in and decides you've propped the mkt enough for me to sell. Some cash trader down the hall sold a few cargoes to china and it's my job to scrape out an extra 2c on the hedge.

Maybe you're not in grains, but its the same across the board.

Cheers.
 
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