How to Trade Futures: (Margin, Contracts & Profit Breakdown) — Transcript

Full transcript

1. 0:00You clicked on this video because
2. 0:01futures trading sounds confusing as
3. 0:03hell. There's too many videos out there
4. 0:05that throw out terms and acronyms like
5. 0:07everybody understands it already. But
6. 0:09not here. I'm going to explain exactly
7. 0:10how futures work with no fluff and no
8. 0:13jargon and give you real examples and
9. 0:15spreadsheets that you can screenshot
10. 0:17that you can actually use as references.
11. 0:19So, if you've ever said, "I just want
12. 0:20somebody to explain this in a way I can
13. 0:22understand," this is that video. AJ,
14. 0:25this video is for you. And for those of
15. 0:26you that don't know what's going on,
16. 0:27every single week I make a personalized
17. 0:29video response to one of your questions
18. 0:31in the comment section down below. AJ
19. 0:33asked, "Will this be applicable to
20. 0:35futures?" Futures is a very heavy topic,
21. 0:37so let's get into it. Why do people
22. 0:39trade futures? You can trade big assets
23. 0:42like gold, oil, or indices like the S&P
24. 0:45500 with smaller accounts. You can go
25. 0:48long in a buy order or short in a sell
26. 0:52order. It's regulated and widely used,
27. 0:54especially in the US. It's an
28. 0:56alternative to Forex, especially since
29. 0:59platforms like MetaTrader, MT4, and MT5
30. 1:03were highly restricted or completely
31. 1:05removed in the United States for most
32. 1:07brokers. This doesn't mean that Forex is
33. 1:09bad. It just means futures is a
34. 1:11different, more regulated route with
35. 1:13clearer rules. So, what is a futures
36. 1:16contract? A contract in futures is
37. 1:18basically your trade agreement. Each
38. 1:20contract has a name like gold futures or
39. 1:24S&P 500 micro, a size, how much of the
40. 1:28asset that you're trading, a tick size,
41. 1:31the smallest price change possible, and
42. 1:33a tick value, how much that change is
43. 1:36worth in dollars. So, let's start with
44. 1:38the basics. What is a tick? A tick is
45. 1:41the smallest move a futures price can
46. 1:44make. It's not always $1 or one penny.
47. 1:48It depends on the contract. So for
48. 1:51example, micro S&P 500, the acronym is
49. 1:55MES.
50. 1:56The tick size is 0.25 points. The tick
51. 2:01value if price moves that.25 points is
52. 2:06$1.25. So, if the S&P price moves from
53. 2:10$5,000 to $5,00025,
54. 2:14that's one tick, a $125%
55. 2:18profit or loss. If it moves one full
56. 2:20point from $5,000 to $5,01,
57. 2:25that's four ticks or a profit of $5.
58. 2:29This is why traders say things like, "It
59. 2:31moved 10 ticks." Because 10 ticks times
60. 2:34the value of the tick is your profit and
61. 2:37loss. Here is a side byside tick value
62. 2:41table. Great for screenshots. I highly
63. 2:44recommend it. On the left hand side, you
64. 2:46can see the contracts that are most
65. 2:47common. S&P 500 E- mini contract, also
66. 2:51known as ES, S&P 500 micro contract,
67. 2:56MEES,
68. 2:57NASDAQ E- mini, NQ, and NASDAQ micro,
69. 3:02MNQ. For those that trade commodities,
70. 3:05we also have crude oil and gold on here.
71. 3:08As you can see, we have the tick sizes,
72. 3:11the smallest possible movement that will
73. 3:14create tick value and the tick value for
74. 3:17each one of these contracts. So, if
75. 3:19price moves 10 ticks, this is the
76. 3:22potential profit value you can assume
77. 3:24for each one of these different types of
78. 3:27assets. If the price moves 100 ticks,
79. 3:31it's a lot more money. Here are the
80. 3:33different types of contracts. For
81. 3:35indices, we have the S&P 500 E- mini,
82. 3:38S&P 500 micro, NASDAQ E- mini, NASDAQ
83. 3:42micro, and the Dow Jones E- Mini. Each
84. 3:45one is associated with its own acronym.
85. 3:48So, screenshot this for your reference.
86. 3:50For commodities, we have gold, crude
87. 3:53oil, silver, natural gas, and corn.
88. 3:57Again, each one is associated with its
89. 3:59own acronym. And if you want to trade
90. 4:01currencies, the most common are going to
91. 4:04be euro, British pound, and Japanese
92. 4:06yen. Also, they are associated with
93. 4:08their own symbols. 6E for euro, 6B for
94. 4:12British pound, and 6J for Japanese yen.
95. 4:15Keep in mind the tick value. This will
96. 4:17be used in all of your calculations. So,
97. 4:19with futures contracts, you have an
98. 4:21expiration date. And I know people are
99. 4:23going to ask this, so I'm just going to
100. 4:25explain it. It's kind of silly. If you
101. 4:27don't close the trade early, one of
102. 4:30these two things happens. Either you get
103. 4:32cash settled, which means you're paid or
104. 4:34charged the profit or loss in cash. This
105. 4:37is common for indices like the S&P 500.
106. 4:40Option two is physically settled
107. 4:42contracts. In theory, you'd receive
108. 4:45a,000 barrels of oil or 5,000 bushels of
109. 4:49corn, but in practice, your broker will
110. 4:52force close your position before this
111. 4:53happens. Bottom line, most traders never
112. 4:56hold to expiration. They're either day
113. 4:58trading or swing trading. You can close
114. 5:00early at any time, just like you would
115. 5:03trading forex. Now, let's talk about
116. 5:05margin requirements. To trade futures,
117. 5:08you need margin, a small amount of money
118. 5:11held by your broker, which is basically
119. 5:13your deposit. Each different type of
120. 5:16contract has a different margin
121. 5:18requirement. So again, another great
122. 5:20screenshot opportunity. We have here at
123. 5:23the top of the list the S&P 500 E- Mini,
124. 5:26also ES margin requirements are going to
125. 5:28be anywhere between $500 and $1,000.
126. 5:31These are all approximations
127. 5:33as each trading platform has its own
128. 5:36requirements, but this is a general rule
129. 5:38of thumb. For the S&P 500 micro, you
130. 5:41will need a lot less because you're
131. 5:43trading smaller amounts. You need about
132. 5:4550 to 100 bucks. Same goes for the
133. 5:48NASDAQ, E- mini, and micro. And when you
134. 5:50start getting into commodities like oil,
135. 5:54silver, gold, natural gas, you're going
136. 5:57to need a lot more margin, $1,000 to
137. 6:00$3,000. And if you're holding trades
138. 6:02overnight, which I don't recommend, you
139. 6:04can see the overnight margin
140. 6:05requirements. Quick notes on this one.
141. 6:07Day trading margin equals the minimum
142. 6:10balance you need per contract if you
143. 6:12open and close with the same day
144. 6:14session. Overnight margin, the required
145. 6:17margin to hold the position past the
146. 6:19market close. These values vary slightly
147. 6:22by broker and may change during high
148. 6:25volatility periods. Now, how does
149. 6:27futures compare to Forex? Let's look at
150. 6:29some key features of each. We're going
151. 6:31to look at regulation platforms, assets,
152. 6:35trade size, and pricing. For futures,
153. 6:37highly regulated different trading
154. 6:39platforms like Ninja Trader and Trade.
155. 6:42For assets, they're both pretty much the
156. 6:44same. You could do indices, commodities,
157. 6:46or currencies. Now, looking at the trade
158. 6:48sizes for futures, you have fixed
159. 6:51contracts versus the flexible lots. With
160. 6:54Forex, you can be very precise to the
161. 6:570.01. When you're trading forex, you're
162. 6:59either trading a full lot, which is 1.0,
163. 7:02a mini lot, which is 0.10, or a microl
164. 7:05lot, which is 0.01. Now, with pricing on
165. 7:09futures, it is exchangebased.
166. 7:12This is going to be the most transparent
167. 7:14form of pricing because they're all
168. 7:16highly regulated and based on the CME,
169. 7:19which is the Chicago Merkantile
170. 7:21Exchange. With Forex, it is brokerbased,
171. 7:24which means each broker gets to set up
172. 7:26their own pricing for every lot, for
173. 7:30every commission, for every swap fee.
174. 7:33It's very variable. Now, I want you to
175. 7:36keep this in mind, and this is probably
176. 7:37the most important part of this entire
177. 7:40video. When you are starting to trade
178. 7:43something new, like futures, I want you
179. 7:46to start small. Just because you can
180. 7:49trade an S&P 500 E- mini contract
181. 7:52doesn't mean that you should you should
182. 7:55start with the micro and you have to
183. 7:58grow into larger trades. Because once
184. 8:00you start small and practice with real
185. 8:03money, you will get a feel for how much
186. 8:05you're making, how much you've
187. 8:07deposited, how much each trade is worth
188. 8:09when they play out in your given
189. 8:10direction. Then once you've realized
190. 8:12that your account has enough margin to
191. 8:15have these bigger trades, then you can
192. 8:17start placing these bigger trades. But
193. 8:19don't do multiples because the margin
194. 8:22compounds on each one of those
195. 8:24contracts. Trading futures is a powerful
196. 8:27way to trade, but please start small.
197. 8:29Just know your contract size and your
198. 8:32tick value and margin requirements
199. 8:34before you enter a trade. The best thing
200. 8:36that you can do is start trading on a
201. 8:38demo account to get a feel for it. And
202. 8:40if you're looking to start trading
203. 8:42futures without risking your own capital
204. 8:44for it, you guys have heard me talk
205. 8:46about it before, but Funder Pro also has
206. 8:49Fun Pro futures so you can prove your
207. 8:51trading skills and get a massive amount
208. 8:54of money to trade with so that you can
209. 8:56make ridiculous income long term. If you
210. 8:59want more info about the Funder Pro
211. 9:01Futures program, it's the first link in
212. 9:03the description down below. And if
213. 9:04you're still struggling getting into a
214. 9:06trade because you keep secondguessing
215. 9:07yourself, go check out our new earn as
216. 9:10you learn program where we provide you
217. 9:13the trade setups so that you can see
218. 9:15what good trades look like and feel like
219. 9:19to make those profits. And while you're
220. 9:21executing those trades, you can learn
221. 9:23about day trading. So now you don't have
222. 9:25to wait 6 months until you can start
223. 9:27trading. You can do it from day one as
224. 9:29you're learning. Check out the earn as
225. 9:31you learn program at trdfloor.com.
226. 9:33I hope this video helped you guys out
227. 9:35and if you have questions that you want
228. 9:36answered in a video response, put them
229. 9:38in the comment section down below.
230. 9:40Thanks so much for watching and we'll
231. 9:41see you in the next one.