Trading Futures

Futures are another way to trade to produce profits on a regular basis. Here are the basics for how Futures work.

We'll focus on the futures for the S&P 500, however there are many other types of futures you may wish to consider. The name for the S&P 500 futures is E-mini S&P 500 or /ES for short. Some brokerages may require the slash and others may not.

This is an index Future mirroring the S&P 500. Futures are tracked using "points".

The ES is currently trading at 6647.50 points. Points are made of ticks and each tick has a dollar value. The ticker ES has a tick = .25 of a point, so there are 4 ticks per point. Each tick has a value of $12.50, therefore a point has a value of $50. This value is only for the ES ticker. Other Futures may have different ticks and tick values and different contract counts (confusing). That's why we're only going to look at the ES Futures Contracts. This can be confusing, but you really only need to know that, in the case of EX futures, each point is = $50 and each contract is = 50 S&P index shares.

ES Futures Contracts

Tick = .25

Tick value = 12.50

4 ticks per point

Point value = $50 per point

This means if you buy 1 ES futures contract for 6650.50 and sell it for6660.50 you gain a 10 points. Your profit is 10 x $50 = $500. Ticks can move fast, so you can realize your profit in seconds to minutes.

Why Futures?

No expirations (can roll to next contract).

No theta decay.

No Greeks.

No PDT (Futures are not subject to PDT).

Very leveraged (works for and against you).

Trade 23 hours per day, 6 days per week.

Taxed via 60/40 rule (60% long-term, 40% short-term capital gains) regardless of holding period. This can be HUGE if you're an active profitable trader.

Capital Efficient.

Research Before Jumping In

Futures are actually easy to trade, but there are quirks you should be familiar with before trading. We will not cover those here. This is a very high level intro to Futures.

Trade Futures Contracts

Using Robinhood as an example, follow their instructions to activate the Futures feature. In your main Robinhood account, scroll down to your watch list and add ES.

Once added tap on the title /ES.

Then tap Trade, Ladder:

The ladder is one way to trade, and it's fun once you get the hang of it.

Pick a price you want to buy or sell and tap it, then select buy or sell. Make sure the quantity is set to your desired number of contracts. Each contract represents 50 shares of the S&P 500 Index.

Now do the same thing to set a sell Limit order (take profit). Make sure the share count is the same. When the price reaches your buy or sell order they will execute.

Neat feature:

After entering a trade, tapping the header of the middle column changes the price to the profit $$$ you'll receive if you close at a particular strike. In other words, instead of picking a strike price you can pick a profit amount. The allows you to STC at a specific profit level instead of a specific price. Pretty cool.

You can flip back and forth between the graph view and the Ladder view if you need to.

Close Your Trades Daily

It's best to close your trades daily. The margin/maintenance requirements may be much greater for holding overnight depending on your broker, so plan to close daily if you can.

Miscellaneous

If you place more than one open buy trade, for example, the two (or more) trades will be combined into a single trade that represents the average of the two or more trades open. At least this is my experience in both Robinhood and Webull.

Enjoy and be careful!

You will not actually receive shares. All /ES transactions are settled in cash each day. If you decide to trade Oil Futures make sure you close your trade or you will end up with tanker loads of oil delivered to your home.

This is not investment advice and we are not licensed advisors. Trade at your own risk. If you decide to trade, We are not liable or responsible for your success or losses. This is all for educational and entertainment purposes. Enjoy the entertainment!