The falacy of futures day trading

One of the most popular trading niches from the last decades and, probably, the most professional along with stocks, is that of the futures markets.

As happens with day trading, there is a gigantic machinery trying to sell the notion that futures day trading is the most efficient way to make a living in the world of trading and a lot of people fall into that error.

It might be that someone can make an acceptable profit doing futures day trading, but there will be not many and, certainly, is not the most efficient way to trade the financial markets. On the contrary, it is one of the worst ways to do it.

There is only one thing worse than that: short-term binary options trading.

There is no doubt that a professional trader, mutual fund or hedge fund manager is going to use futures instead of CFDs or retail Forex – a different matter is institutional Forex markets.

Meanwhile, the absurd idea that by attending a specialized day trading course (there are a lot in Spain for instance) and opening a 5.000 dollars account you can become a professional day trader is ridiculous.

Futures day trading rules

The first rule you break with this is that of a good money management. They make you believe that you can trade one futures contract with a nominal of 100000 dollars efficiently with 500 dollars margin.

This is related to the fact that size is a very important concept in trading.

We should never trade assets in which we can only trade one contract. This is a transcendental point since it will always be difficult to grow our trading size if we try to do so from one contract.

A professional approach should never involve less than five or ten contracts. By doing so, we can increase or decrease our trading position with proper money management rules.

And so, trying to convince people that they can do futures day trading with small accounts – something that is widely accepted by American brokers – is something not very responsible, to say the least. But emotions rule this world and people just want some “fun”, so some guys provide it by great marketing strategies.

The great majority of these day trading coaches and mentors are nothing more than fraudsters that provide coaching in something that they cannot even master, at least not in the way they preach to their customers.

In this regard, retail traders should know that, whether it is futures, CFDs, Forex, stocks, whatever, they will lose money trying day trading. So, the best thing they can do is trying not to lose too much.

The huge size of futures contracts for trading

If we want to day trade in the DAX, a contract is worth some 250000 dollars. It is not a good idea to try to trade that amount with a 10000 dollars account, since we are going to end up bust rather quickly. We will find ourselves risking 8% of our account very soon, and that is not a very good idea.

However, there are good DAX CFDs that offers us 3 points of spread that are enough for anyone who knows how to trade with an acceptable stop loss level; and that means, not doing scalping or frequent trading.

A DAX CFD contract is 11.000 euros, and it can be traded quite well with a 3 or 4 thousand euros account. A trader can even trade 4 or 5 contacts in that way, although I do not think we should use that leverage.

Sure, the future is cheaper and more efficient, but unless you have a 200000 dollars, you should look for something else.

What is more, the best thing a trader could do is to try to trade a bigger time range, something like “week trading”. By doing so, we will end up paying fewer commissions and enjoying overnight rallies or crashes since a lot of big movements happen in that time.

But there is another point. If there is an efficient market for short-term trading it is that of index trading. If you understand that the majority of years the market is in an uptrend it will not be difficult to design a profitable strategy.

That type of trading performs better with traders open for many days rather than trading every day in and out.

Furthermore, trading bear markets is a very difficult thing, and in most cases we had better avoid it.

Futures day trading, in particular index trading, should be left for professionals and “high net worth individuals”, who I do not think have become rich by doing day trading. Anyway, I wish good luck to whoever wants to try it.