Day Trading Futures For A Living

I worked as a futures day trader for a year between 2008-2009. It wasn’t a particularly good time to start in the markets because the volatility from the credit crunch was intense. Having said that, some experienced day traders really benefitted from the increased volatility and made a lot of money.

Nowadays, I do very little day trading. I have the upmost respect for day traders who are able to make it work but it’s a style of trading that just isn’t for me. I have a hard time sitting in front of a screen all day watching price movements which is why I prefer slightly longer time frames.

Day trading is basically very difficult and most of those who try it will fail.

day trading futures for a living. Picture of TT trader

Source: Trading Technologies

What I used to trade

When I first started trading I was given two products to focus on; German Bunds and London’s FTSE. These are popular futures for day traders in Europe as they are highly liquid with tight spreads. On occasion I would also trade the Dow, GBP/USD and STIRs (UK short term interest rates). We had one Bloomberg Terminal in the office and would use E-Signal and Trading Technologies to play the markets. We also had a squawk box, CNBC and 4 screens each.

Can anyone day trade futures?

Of course the simple answer is that not everyone can day trade futures. To be able to trade futures our firm had to have a large margin account with our clearing broker. Upwards of GBP30,000.

Aside from that there are high daily costs with futures trading. To trade at our firm the desk fee was  around GBP100 per day and that was cheap compared to most other brokers.

This was the desk fee and included trading software, data, phone line and connections to the exchange etc. Comparatively, the cost to trade was very small at just GBP$1 per trade per contract (GBP$2 for a round trip).

So for the ordinary retail trader it’s not possible to trade futures. But, it is possible to trade futures products in other forms for example as CFD’s, spread bets, spot products or ETFs.

Day trading futures products for retail traders

By using a spread betting firm or a CFD provider it’s possible to trade the FTSE100, the Dow, German Bunds, Gold or any of the popular futures products.

It’s worth noting that the spreads on these products are higher than they are for futures traders. But on the flip side, the fixed costs are much lower – no $100 a day desk fee, no huge margin requirement and there’s no concern about rolling over different quarter futures contracts.

Tips & tricks for day trading futures for a living

Without doubt, day trading is a difficult thing to do. I don’t recommend day trading for most people but from my experience, the most successful day traders are those who possess the following skills:

Intuition

The best day traders are those who focus on just one or two products. They watch the tape each day (not just the chart) and get to know them inside out. By doing so they are able to trade with a high level of gut feel. That level of intuition can’t be taught, it only comes from studying the product and some traders may never learn it.

Attitude

One of the keys to successfully day trading futures for a living is having the right mentality. Successful day traders take responsibility for their trades and trade with a huge amount of discipline. Most importantly, successful day traders do not self sabotage. They have a high level of self confidence and make sure that they are compensated for the risk that they take on. They don’t gamble and they understand the relationship between risk and reward.

Number of trades

If you’re a futures trader on a desk you can place more trades because the cost per trade is smaller (although that doesn’t mean you should). On the other hand, if you’re trading CFDs, spot products or spread bets, you need to seriously cut down on the number of trades you make a day. Spreads on the major forex pairs and stock markets are low but they are not insignificant. You should try and make only one or two trades a day if you want to consistently make money.

Fundamentals

Another thing successful day traders need is a good appreciation of the fundamentals. To be sure, technical levels are very important for short term traders but fundamentals also need to be understood. Knowing how to react to certain news releases and events is essential. Combing fundamental and technical is the best way.

Technicals

Day traders need the flexibility to go with trends or to trade against the flow. Short term markets are choppier than long term markets and traders need to be able to switch from long and short easily. They can’t get caught up only playing one side of the market and they should cut losses quickly. Pivot points, moving averages and RSI are good indicators for day traders.

A word about bank traders

A lot of people get confused with day trading, primarily because of the way it is portrayed in the media. It’s important to understand that 90% of traders at investment banks like Goldman Sachs and Citigroup are not engaged in real, directional trading. What they actually do is make the market for their clients. They quote prices to their customers and take a couple of points profit from the spread.

Let’s look at an example. Say a customer rings up Goldman Sachs and wants to buy Apple stock. The trader at Goldmans simply buys Apple direct from the exchange for $90.50 and sells it to the customer at $90.60, thus making a risk free $0.10 per share.

Bank traders have direct market access and this model is how most investment banks run their books. They also use order flow and volume to further reduce the risk of their trades going wrong but this is essentially a very low risk business model.

So, this is how Goldman Sachs are able to go weeks at a time without having even one losing day. Real, directional trading can never have such a successful win ratio.


Getting into day trading?

See my favourite intraday trading techniques and check out the resources for brokers, books and systems.

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