Advantages of Day Trading Futures

Day trading offers various strategies across different financial instruments, with futures presenting unique advantages for traders. This guide explores the key advantages and considerations of futures trading, based on my experiences with Chicago Mercantile Exchange futures.

Key Advantages of Futures Trading

There is no additional cost or margin requirements for short positions nor do you need to borrow shares.

Futures contracts offer significant leverage, typically higher than stock on margin, forex, or crypto accounts in the US. This allows a trader to make more money with smaller price movements. It also requires discipline to avoid substantial losses.

Fixed commissions provide predictable trading expenses. Traders pay a set fee for each contract they trade.

Futures offer beneficial tax treatment in the US. Often described as the 60/40 rule. 60% of your profits are taxed as long term gains, which is a lower tax rate. The other 40% is taxed at your regular income tax rate.

Currently, due to the pattern day trading rule, day trading stocks with less than $25k, could limit your ability to buy and sell beyond a few times a week.  Futures do not have this restriction.

Futures contracts allow for easy scaling up of position sizes. If you can learn to profit from single contract, you can easily scale that to 2 or more contracts or a larger contract, often called a mini.

Diverse trading instruments: commodities, currencies, stock market indexes and T-bills. While there is great diveristy, liquidity and spreads can vary widely.

Unlike stock trading, futures provide more accessible and accurate historical price data. Most brokers offer historical trade data at no additional cost, sometimes decades worth of data. Some platforms like Sierra Chart provide price data back to a contract’s inception.

There is usually minimal data inaccuracies compared to stock market historical data

The more popular futures contracts, like ES, MES, NQ, MNQ, etc, have very high liquidity during US trading hours. This results in minimal and often no slippage.

Most futures contracts trade 23.75 hours a day, 5 days a week.

Both the exchanges and brokers are strictly regulated by the Commodity Futures Trading Commission. Futures are more transparent and potentially safer than cryptocurrency and offshore markets. Many exchanges have been in business for decades, with the CME being founded in 1898.

Brokers must keep customer funds separate from operating funds. While this doesn’t prevent bankrupties and fraud, there have been no losses of customer funds.

Potential Drawbacks to Consider

• Fewer trading instruments compared to stock markets
• Some contracts have low trading volumes
• Requires adaptability to different market conditions

• Steeper learning curve compared to stock trading
• No direct company ownership
• Uninsured customer funds, i.e. no customer protection for trading firm bankruptcies, however, there has never been customer losses due to this.
• High failure rate (90-97% of day traders are not consistently profitable)