Why Trade Futures?
Why Trade Futures?
There are many quality futures markets around the world. Below are some but not all of the Futures markets we offer trading education on at Online Trading Academy.
Figure 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
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 lastÖ
- 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:
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
About Sam Seiden
Sam brings over 15 years experience of equities, forex, options and futures trading which began when he was on the floor of the Chicago Mercantile Exchange where he facilitated institutional orderflow.. He has traded equities, futures, interest rate markets, forex, options, and commodities for his personal interests for years and has educated hundreds of traders and investors through seminars and daily advisory services both domestically and internationally. Sam has been involved in the markets since 1991 both on and off the floor of the Chicago Mercantile Exchange. He has served as the Director of Technical Research for two trading firms and regularly contributes articles to industry publications. Sam is known for his trading, technical research, and educational guidance.
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