Day Trading Futures: How Does It Work?

Day trading futures can be a wild emotional roller coaster. As a day trader, you must do a great deal of research. You must know the trends, have a system and stick to it. We can't fully deal with all the complexities here, but if you invest a little time into researching this subject you will find it has enormous potential. It is unlike any type of investing you may have encountered before.

What Are Futures?

A future is a contract to buy a certain amount of goods, that usually haven't been produced yet. They usually have a delivery on a specific date in the future. They can be commodities, anything from grain to gold, or they can be stocks or groups of stock. Day traders generally like commodity futures better because they have greater fluctuations, and a much broader range of possibilities in the way they can be traded. It is also a huge market.

What is day trading?

In normal stock trading an investor buys stock and sits on it with the expectation it's value will increase over time. Day trading works a little differently, the investor buys and sells everything in one day. As a day trader you have to deal in extremely volatile stock situations. You have to maximize daily fluctuations as stocks or commodities rise and fall. In order to get the greatest benefit, you usually have to  borrow or leverage the contracts you are buying. At the end of the day, you might be quite a bit richer. However, if you guessed wrong, didn't move at the right time or are leveraged too deeply, you can find yourself suddenly very poor.

Pirate or Pansy

There is little room for the fainthearted in this kind of trading. As a futures day trader, you live in an exotic world of investing. You must have a thorough understanding of a new language that includes terms like: puts, calls, hedging, options, margins, etc. It is a complex world with enormous potential for gain or loss. You must be able to crunch the numbers until you see trends emerge, then use this information to calculate how the futures will change in a given day. You must open a position at just the right moment.

You need to resist the temptation to over trade because there will be many opportunities. The fact moving pace of day trading can work against you, tread carefully because you don't want to be holding this bag when the bell rings. You have to be patient as the price of the stock jumps up, than down. Take a deep breath once it's over because it's just another day at the office.

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