Previous Entry:
Introduction
If you're new to futures trading you most likely have some questions about how money is actually made in the markets. In Part 3 of the Emini Day Trading Series, we will cover margin requirements, the different trade types and the commissions a trader pays. We will then take a closer look at potential day trader income over the course of a month and year when trading with various contract sizes.
Account Size, Leverage, and Margin
One of the great advantages of the futures market is the excellent leverage available to traders. This high leverage allows even those with smaller accounts to get started with trading a single Emini contract while still not taking on too much overall risk. It's true that leverage can be a double-edged sword for traders, both increasing potential profits and potential risk of loss, but with a good plan and a defined maximum risk this increased leverage is a very useful tool.
What the high leverage available in futures allows us to do is to trade intra-day (meaning that no trades remain open at the end each trading day) with as little as $500 per contract on margin. Essentially margin is what your broker uses as collateral for you to take control of a futures contract. Theoretically, a trader could trade as many as 5 contracts ($500 margin each) at once with a $2,500 account, though this would introduce a trader to an enormous amount of risk. In order to use leverage to our advantage we need to understand our total risk on any given trade and plan our positions accordingly.
At Samurai Trading Academy we recommend an account size of at least $5,000 for a new day trader who is just getting their start in the live market. Using our trading approach we often maintain an average loss of about 4 ticks (or 1 point), which at $12.50 per tick for 1 contract comes out to $50 of average risk. This means that with an account size of $5,000 a trader is only risking about 1% of their account on any one trade. This is ideal, especially for a newer trader, as it allows occasional losses without decimating the health of our overall account.
More experienced traders may increase their risk beyond these levels but very rarely would a trader want to increase their total risk of loss on any given trade beyond 2%. Novice traders often focus on how much profit can be made but experienced traders will tell you that risk management is a crucial part of their trading approach. Keep your risk low through appropriate position sizing relative to your account size and you will be able to fully enjoy the benefits of leverage available to futures traders.
Trading Long (Buy) and Short (Sell)
In the futures market we are able to trade and make money when the market is going up or going down. Compared to some markets and many individual stocks, the flexibility we have to trade in either direction with futures is a major advantage. We don't need any special account permissions from our broker or minimum account sizes to sell the market, as there is no practical difference in the futures market between going long and short.
In case the terms long and short are unfamiliar to you, let's quickly define them. When a day trader enters a long trade, they are buying a contract in expectation of the price going up so they can exit at the higher price for a profit. Many traders will use the terms "buy" and "long" interchangeably. On the other hand, when a trader takes a short trade, they are selling a contract with the expectation that price will go down. So how does a trader make a profit on a contract they don't already own when price drops and the contract becomes worth less?
When short selling, we are essentially "borrowing" a futures contract we don't own from our broker with the intention to buy it later (called "covering"), effectively returning the contract to the broker. Doing this allows us to profit from the difference between the original short price where we borrowed the contract and the cheaper price where we eventually bought the contract. We return the contract to the broker at the original borrowing price and get to profit from the difference on the sale.
While it's useful to understand the difference between buying or selling a contract, it's important to realize that in the futures market it makes little difference in terms of ouractivitiesas day traders. During actual trading, both trade types act similarly when executed and there is no difference in trading costs between them.
Profits and Losses
Now that we understand margin and know that we can trade long or short with equal ease we can look at some specific examples of how we make money (or sometimes lose money) on our trades. These examples are very basic in execution and in terms of trade management but they should give you a good idea of how trades are taken and how we exit them. We will also explore the commissions and exchange fees we need to pay to take part in the futures market as this is part of our cost of doing business as day traders.
Example of a Profitable Long
In this example we will take a look at a basic trade we do here at Samurai Trading Academy. In this case we enter the trade with an initial profit target of 8 ticks and a maximum potential loss of 5 ticks. We always make sure to have a Stop Loss order on our trades, to ensure that we never take a larger loss than planned. This is absolutely crucial as you never know what may happen in the market, so setting a maximum potential risk on a trade right from the start is an important trading practice.
Here we go long (buy) at 1536.75. Our initial stop is set 5 ticks (1.25 points) lower at 1535.50 and our Take Profit order is set 8 ticks above our entry at 1538.75. As you can see, price makes a leg higher and we are able to sell the contract at our Take Profit target for an 8 tick (2 point) profit on the trade.
Let's assume we only bought 1 contract on this trade using $500 in margin with our broker as collateral. As we already know from Part 1 of the Emini Day Trading Series, each tick is worth $12.50 per contract, so once we sell our contract at the higher price and close the trade we will see a profit of $100 (8 x $12.50) added to our account (less commissions which we will cover next).
Although novice traders should always be trading the minimum amount of just 1 contract, experienced traders can increase their size substantially if they desire. In the Emini S&P 500 (ES) futures market, a trader can easily get filled for even hundreds of contracts at a time due to the large amount of liquidity in the market. So assuming that a professional trader took the same trade but with 10 contracts, their profit would be $100 for each contract, so $1000 on the trade. Many trades in ES can reach their profit targets within just a few minutes which potentially makes even smaller movements hugely lucrative over the course of the trading day for those traders taking larger positions.
Example of a Losing Short
In this case we take a short position that eventually ends up being a losing trade. When we initially enter our trade we start with the same 5 tick (1.25 points) Stop Loss and 8 tick (2 points) Profit Target as in the previous example. What's important in this example is that we got an opportunity to reduce our risk and take a smaller loss when the trading opportunity wasn't working out. We don't always get a chance to do this but when the rules allow us to use bring in our stops it greatly reduces the impact to our bottom line that any losses might have and increases our overall reward to risk ratio.
After a good run down, we find an opportunity to short the market at 1538.75. Price does make another attempt to the downside but is still 2 ticks short of our Take Profit area at 1536.75. Although we began this trade with a 5 tick stop, we do have an opportunity to minimize our risk.
A huge part of seeing long term results with your trading is to know when you can minimize your risk on a trade. According to the rules we use here at Samurai Trading Academy, in this trading situation we are able to bring in our Stop Loss order by 3 ticks making our maximum potential loss on the trade just 2 ticks. Basically, we've identified a situation in the market where our trade has become slightly lower probability so we follow our stop management rules in order to reduce our overall risk while still maintaining a large profit potential on the trade if it does resume the prior move down.
In this case we don't have another move to the downside and to where we've set our Take Profit so we end up getting stopped out for a 2 tick (0.5 point) loss. Because we had initially "borrowed" our contract for this short in hopes of buying it at a lower price later we end up taking an overall loss on this trade when we have to buy it back at a higher price. If trading with one contract, this loss will remove $25 (plus commissions) from our account.
Commissions and Exchange Fees
Another important consideration when transitioning into day trading is the commissions and fees you will need to pay to place trades. There are two primary costs you will need to pay: a commission to your broker, and a fee to the central exchange to place your trades. Your broker will take care of this for you automatically each time you fill a trade order.
Since each trade has two parts, one to enter and then one to exit, you will be charged fees for each side of the trade. Most people look at their fees in terms of a "round-trip", where both the entry and the exit fees are lumped together.
Typically these fees for a new trader are around $4 for a round-trip trade with 1 contract in ES. The split is usually near 50/50 in terms of what goes to your broker for the service they've provided, and what goes to the central exchange. As a trader begins to trade with larger size (more contracts) and has more round-trip trades per month they can usually get greatly discounted commissions from their broker. Similarly, there are options for reduced exchange fees for larger traders as well, like buying a seat on the exchange itself.
Because there are fees involved in taking trades, it's important that we don't just take trades constantly throughout the day without a good reason to do so. Although the fees are relatively small (about 3-4 trades are worth the same as 1 tick of movement in the market) they do add up over time. Trading is a business like any other, so we want to make sure we are only paying money for something worthwhile, which in our case would be high quality trading opportunities.
Potential Day Trader Income
For obvious reasons, the potential day trader income varies widely. The system traded, the size of their positions, the risk management, and their experience level all come into play. For the purpose of this example we will take a look at a developing trader using our approach at Samurai Trading Academy.
Our goal here at Samurai Trading Academy is to bring traders to a level of consistency where they can make 10-15 points of profit per week.
To do this with consistency requires a few things from a trading approach:
- A tested, winning trading strategy that is adaptable to the market and works in a variety of conditions
- A system that has more winning trades than losing trades
- A system that has bigger wins than losses (we aim for average wins twice as large as our average losses)
The STA trading approach allows our fully trained traders to reach these goals with remarkable consistency, and that's what trading is really all about. The best traders rarely focus on the short-term by aggressively trying to make hundreds of points in a few days. Rather, the greatest traders are the ones who are able to remain consistently profitable week to week and month after month for an extended period of time. This outcome is what we aim for with our students here at Samurai Trading Academy.
If a trader develops consistency, then the possibilities are almost limitless in terms of their potential income as a day trader. Most traders who reach a level of consistency in their trading then increase their number of contracts until they find their ideal psychological comfort zone, where they usually settle for the long-term. For some traders that might be 5 contracts, for others 10 contracts, and for some it may be hundreds. Let's take a look at some of the long-term day trader income potential at various trading sizes:
It's important to keep in mind that these would be gross trading profits and that there would still be commissions and fees to be paid. These costs would vary week to week depending on how active the market has been but as our strategy doesn't have us entering and exiting the market repeatedly its allows usto keep these costs of trading relatively low.
Conclusion
After reading this article, you should now have a good idea of how we take trades using leverage and margin, and how we can make (or lose) money on the outcomes of our individual trades. There is a great deal more to trading than this, of course, but this overview should give you an idea of how a day trader makes their money and what is possible by trading in the markets.
The next step in the progression is fully understanding what a person needs to actually begin day trading. In the next article of the Emini Day Trading Series, we will talk about brokers, charting platforms, trading computers, and other steps you will need to take to make your transition into a profitable and consistent trader.
Emini Day Trading Series
Part 1:
Part 2:
Part 3:How Money is Made as an Emini Day Trader
Part 4:What You Need to Start Day Trading
Cody Hind
Founder & Head Trader at Samurai Trading Academy
Cody has over a decade of experience day trading the Emini S&P 500 (ES) and Forex markets and has worked personally with dozens of traders to help them achieve consistent profitability and make trading a full-time career.
Latest posts by Cody Hind (see all)
- Strike While The Iron is Hot - March 1, 2021
- The Path to Becoming a Full Time Trader - February 22, 2021
- Looking to 2021 and Beyond - January 20, 2021
FAQs
The profits include commissions, seat fees paid to the trading company, or capital leftover from the trading fees. Due to the unpredictability of day trading, many companies operate a draw commission system with other bonuses. The national average salary of day traders is $67,995 per year.
How much does 1 E-mini contract cost? ›
E-mini S&P 500 futures contract specifications. 0.25, worth $12.50 per contract. E-mini S&P 500 futures trade on the CME Globex® trading platform, from 6:00 p.m. U.S. ET all the way until 5:00 p.m. U.S. ET the following afternoon. E-mini S&P 500 futures trade on a quarterly cycle.
How much do you make day trading futures? ›
The average salary for a futures trader in the United States is $109,622. Futures trader salaries typically range between $64,000 and $186,000 a year. The average hourly rate for futures traders is $52.7 per hour. Location, education, and experience impacts how much a futures trader can expect to make.
Can you make money trading E-mini futures? ›
Are you still asking yourself if there is enough potential each day to earn real money day trading the micro futures contract? The answer is yes! The average trading range from high to low is over 50 points each day. A 50 point move has a dollar value of $250 per contract.
How much can you make day trading with $1000? ›
If you have a profitable trading system averaging 15% return a year: $1000 account will make you $150. $10,000 account will make you $1500. $100,000 account will make you $15,000.
Can you make 500 a day day trading? ›
In terms of money, that means not giving up very much profit potential. For example, a part-time trader may find that they can make $500 per day on average, trading during only the best two to three hours of the day.
How much does 1 es contract cost? ›
E-mini Ticks
A 1-point movement in the S&P 500 index is worth $50 per E-mini contract. An E-mini “tick” is measured at . 25 index points. So, a one tick movement, up or down, in an ES contract is work $12.50.
How much is 1 point on ES Mini? ›
The E-mini moves in 0.25 point increments, and each one of those increments equates to $12.50 on one contract. 24 Therefore, a one-point move, which is four ticks, means $50 is gained or lost.
Can I trade futures with $500? ›
Some small futures brokers offer accounts with a minimum deposit of $500 or less, but some of the better-known brokers that offer futures will require minimum deposits of as much as $5,000 to $10,000.
Do you need $25,000 to day trade futures? ›
Minimum Account Size
A pattern day trader who executes four or more round turns in a single security within a week is required to maintain a minimum equity of $25,000 in their brokerage account. But a futures trader is not required to meet this minimum account size.
The answer is yes. There are half a million people in India day trading for a living. Do you feel day trading is a way to make easy money? Or, you may think it does not need as much work as a regular job.
How much money do day traders with $10000 accounts make per day on average? ›
If you have a trading account of $10,000, a good day might bring in a five percent gain, or $500.
What are the best hours to trade E-mini? ›
The best time to day trade the Emini is between 8:30am and 11:30am, Chicago time. That is, from the Open until just before lunch time. During those first 3 hours of trade, you will have the largest number of participants active in the market because US and European trading overlaps.
How much money do you need to trade E-mini? ›
There is no legal minimum on what balance you must maintain to day trade futures, although you must have enough in the account to cover all day trading margins and fluctuations which result from your positions. These can vary by broker however some require as little as $500 to open an account.
How many E-mini contracts can I trade? ›
How Many E-mini Contracts Can I Trade? Theoretically, you can trade as many E-mini contracts as your account balance allows you. Because E-mini contracts are traded on margin ($500/contract) you can trade more contracts with less money.
Can you make $100 a day trading? ›
A day trader might make 100 to a few hundred trades in a day, depending on the strategy and how frequently attractive opportunities appear. With so many trades, it's important that day traders keep costs low — our online broker comparison tool can help narrow the options.
Is it possible to make 100k a day trading? ›
Some elite traders at firms like SMB Capital may hit 7 figures. The average trader will do between 60k and 100k, and underperformers will have so many position limits placed on their account, they are basically practicing and not making any money.
Can you make money day trading with $100? ›
Since margin trading allows you to open trades with just a small amount of money, it's certainly possible to start trading forex with a $100 deposit.
How many hours do day traders work? ›
Most independent day traders have short days, working two to five hours per day. Often they will practice making simulated trades for several months before beginning to make live trades. They track their successes and failures versus the market, aiming to learn by experience.
What is the most profitable day trading strategy? ›
Scalping is one of the most popular strategies. It involves selling almost immediately after a trade becomes profitable. The price target is whatever figure means that you'll make money on the trade. Fading involves shorting stocks after rapid moves upward.
The annual salary for day traders ranges from $88,000 to $154,000 per year. About 68% of day traders have a bachelor's degree. The three most common skills for day traders are technical analysis, equities, and market trends.
What is the difference between E-mini and spy? ›
Execution - E-mini's are traded nearly 24/7 during the weekdays on the CME Globex system, whereas the SPY is only traded during normal and extended US exchange trading hours (6am-8pm EST). 3. Leverage - In trading futures the margin requirements are different from those in the equity markets.
What months are E-mini contracts? ›
commodity info
| Barchart Symbol | ES |
|---|
| Daily Limit | 7.0%, 13.0% and 20.0% decline below the Settlement Price of the preceding session |
| Contract Size | $50 times Index |
| Months | Mar, Jun, Sep, Dec (H, M, U, Z) |
| Trading Hours | 5:00p.m. - 4:00p.m. (Sun-Fri) (Settles 3:00p.m.) CST |
8 more rowsThe E-mini is typically 1/5 of a standard contract and the Micro E-mini is 1/10 of the E-mini. So the S&P 500 standard contract (which is no longer listed) was $250 times the value of the S&P 500 and the E-mini is $50 times the S&P 500's value. The Micro E-mini, therefore, is $5 times the index's value.
How much is a tick on micro E-mini? ›
Similar to the E-mini, the tick increments of the Micro E-mini S&P 500 are quoted in a quarter of one point, a one tick move in the Micro E-mini S&P 500 equates to $1.25. A one-point move, which is four ticks, is worth $5.
How much is 1 point worth on es? ›
One point is the smallest price increment change that can occur on the left side of the decimal point. For example, S&P 500 E-Mini (ES) futures might experience a price change from 1314.00 to 1315.00, which is a price change of one point. If Crude Oil (CL) moves from 68.00 to 69.00, that is one point.
Can I trade futures with $1,000 dollars? ›
The range varies from as little as $500 to $5,000 USD per contract for the mini products. But if you are brand new, you can start trading micro futures for as little as $50 to $400 per contract. Again this depends on the broker you choose.
Can you make a living with futures trading? ›
By focusing on a single market, you can get up to speed quicker. Trading futures for a living is a compelling idea — but to do it successfully, you'll need sufficient startup capital and a well-designed trading plan.
Can you make millions trading futures? ›
You can earn millions of money trading futures, and you can lose millions as well.
How are day traders taxed? ›
If investments are held for a year or less, ordinary income taxes apply to any gains. Holding an investment for more than a year usually allows traders to take advantage of lower long-term capital gains tax rates.
The first way day traders avoid taxes is by using the mark-to-market method. This method takes advantage of the ability of day traders to offset capital gains with capital losses. Investors can get a tax deduction for any investments they lost money on and use that to avoid or reduce capital gains tax.
How much is day trading taxed? ›
How is day trading taxed? Day traders pay short-term capital gains of 28% on any profits. You can deduct your losses from the gains to come to the taxable amount.
How many day traders are successful? ›
The success rate for day traders is estimated to be around only 10%. So, if around 90% of day traders are losing money in general, how could anyone expect to make a living this way?
How much do day traders make per month? ›
Day Trader Salary
| Annual Salary | Monthly Pay |
|---|
| Top Earners | $132,500 | $11,041 |
| 75th Percentile | $96,500 | $8,041 |
| Average | $76,989 | $6,415 |
| 25th Percentile | $34,000 | $2,833 |
If you're thinking about day trading for the first time, it's important to know that day trading profits are hard to come by. You can make money day trading, but you'd be in very limited company. The paradox of day trading is that it may seem like a good idea, depending on how the stock market is performing.
Can a day trader be a millionaire? ›
Yes, you can become very rich from day trading if you are lucky and everything goes just right, but it is extremely difficult. Most people fail in day trading because the odds are already against them as retail traders.
Why $25 000 for day trading? ›
One of the most common requirements for trading the stock market as a day trader is the $25,000 rule. You need a minimum of $25,000 equity to day trade a margin account because the Financial Industry Regulatory Authority (FINRA) mandates it. The regulatory body calls it the 'Pattern Day Trading Rule'.
How many trades should a day trader take per day? ›
To be honest, there's no set rule on how many trades you should make. There is no fixed number. It will depend a lot on you, your trading style, your risk-taking ability.
What is the best Emini trading strategy? ›
The best Emini trading strategy requires to hold your trades to the close. Don't try to get in and out scalping ES futures because when you have a loss most likely it will eat all the previous profits. Instead, try to catch a trend move and hold it to the close.
What time is best to trade for day traders? ›
The opening 9:30 a.m. to 10:30 a.m. Eastern time (ET) period is often one of the best hours of the day for day trading, offering the biggest moves in the shortest amount of time. A lot of professional day traders stop trading around 11:30 a.m. because that is when volatility and volume tend to taper off.
The stock market has three trading sessions running from 4 a.m. to 8 p.m. Eastern time. The market is most stable at noon, making this the best time for beginner investors to buy shares. If you are investing for the long-term, there is no point trying to time the market.
Is there a monthly fee for e trade? ›
E*TRADE charges no annual or inactivity fee. There is a $75 full transfer out fee; it's $25 for a partial transfer. Most brokers impose a fee to transfer securities out of your account; that fee is often higher if you transfer out your full balance and close the account completely.
Is day trading futures worth it? ›
Most people who day trade futures are not able to earn money. A lack of preparation and discipline is usually their downfall. Day trading can be an unforgiving game. However, for those willing to do homework, develop a plan, and stick to it with discipline, it can be a profitable venture.
What is the best time to trade futures? ›
The final hour before the closing bell (3:00 PM – 4:00 PM EST) is key for futures traders as price action tends to pick up again. Day traders are looking to liquidate open positions as overnight traders across the globe enter the market.
Can you day trade with $2000? ›
If you are a trader who occasionally executes day trades, you are subject to the same margin requirements as non-day traders. This means you must have a minimum equity of $2,000 to buy on margin.
How many lots can I trade with $500? ›
You have $500 on your account. With 1:100 leverage, this amount will be enough to make 50 trades of 0.01 lot each.
How much does 1 E-mini futures cost? ›
E-mini S&P 500 futures contract specifications. 0.25, worth $12.50 per contract. E-mini S&P 500 futures trade on the CME Globex® trading platform, from 6:00 p.m. U.S. ET all the way until 5:00 p.m. U.S. ET the following afternoon.
Can you make 100k a year day trading? ›
The average trader will do between 60k and 100k, and underperformers will have so many position limits placed on their account, they are basically practicing and not making any money. These underperformers will likely remove themselves from the game because practicing does not pay the bills.
Can a day trader make 1% per day? ›
No, you cannot make 1 percent a day day trading, due to two reasons. Firstly, 1 percent a day would quickly amass into huge returns that simply aren't attainable. Secondly, your returns won't be distributed evenly across all days. Instead, you'll experience both winning and losing days.
How much money do day traders with $10 000 accounts make per day on average? ›
Profit Margins
Day traders get a wide variety of results that largely depend on the amount of capital they can risk, and their skill at managing that money. If you have a trading account of $10,000, a good day might bring in a five percent gain, or $500.
According to FIRE, your portfolio should cover 25 times your annual expenses. Then, if you withdraw 4% of your portfolio every year, your portfolio will continue to grow and won't be compromised. We can apply this formula to the goal of making $3,000 a month like this: $3,000 x 12 months x 25 years = $900,000.
Can you realistically make a living day trading? ›
The answer is yes. There are half a million people in India day trading for a living. Do you feel day trading is a way to make easy money? Or, you may think it does not need as much work as a regular job.
What do top 10% of day traders make? ›
Day Traders in America make an average salary of $116,895 per year or $56 per hour. The top 10 percent makes over $198,000 per year, while the bottom 10 percent under $68,000 per year.
What is the 5 3 1 rule trading? ›
Intro: 5-3-1 trading strategy
The numbers five, three and one stand for: Five currency pairs to learn and trade. Three strategies to become an expert on and use with your trades. One time to trade, the same time every day.
How many day traders fail? ›
Approximately 1-20% of day traders make money day trading. Just a tiny fraction of day traders make any significant amount of money. That means that between 80 to 99% of them fail. We have looked at plenty of research and very few traders can brag about making any significant amount of money day trading.
How many people make a living day trading? ›
Only 4,000 individuals (less than 1% of the population of day traders) were able to consistently profit, net of fees.
How to become a millionaire investing $200 a month? ›
Investing as little as $200 a month can, if you do it consistently and invest wisely, turn into more than $150,000 in as soon as 20 years. If you keep contributing the same amount for another 20 years while generating the same average annual return on your investments, you could have more than $1.2 million.
How long will it take to become a millionaire if I invest 1000 a month? ›
Here's the breakdown, according to CNBC. If you start saving $1000 a month at age 20 will grow to $1.6 million when you retire in 47 years.
How long to become a millionaire investing $1,000 a month? ›
If you put $1,000 into investments every month for 30 years, you can probably anticipate having more than $1 million by the end, assuming a 6% annual rate of return and few surprises.
