It's something called notational value. You can think of it as a multiplier that allows you to control many hundreds of thousands of dollars for a small amount of money like 10k or so.
For example, the ES contract is around 1985 right now. It has a notational value of $50/point * 1985 points = $99,250. So, by buying one contract at this price, you are controlling almost $100k worth of value. This link describes a bit more of it.
You are correct in thinking you buy it at (in my example) 1985. That's your entry price, that's the price that you care about for P&L, that's the price that you can quote folks if you're talking about your position. However, due to margins and leveraging, you are truthfully controlling almost $100k by buying or selling one contract at 1985.
Basically, the thing you really need to worry about when entering the futures market is leverage. It is very very easy to say "Sure, I'll buy ten" when you're coming from a stock trading background in which ten shares is nothing. Ten futures contracts is a large size, especially for somebody starting out with (likely) an account in the five figure range.
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So if someone lets me open an account for $400. Clearly there is a leverage of 1:5 roughly (given the current ES quote).
and so if I wanted to buy 2 contracts, I would need $800 in my trading account?
Lastly, so then is it possible at all to trade in the ES market without using leverage? It ultimately boils down to the fact that I don't want to trade or invest on borrowed money (just a simple principle I live by, however there are a few exceptions like buying a house or a car loan ( in these situations you need to take a loan).
But it seems like you have to trade with leverage.
I know it can get very technical and complicated, but based on a lot of reading I've done past 2 weeks. I need to pretty much be able to learn price action,a few good guiding indicators and just practice at being able to predict when to enter a trade and just exit with a point or 2 and call it a day. As I get better and better, just increase the quantity rather than target point.
How does that sound for a safe and low risk strategy ^ ?
Thanks everybody for bearing with my stupidity. :$
Bear in mind that if you are starting out many people would recommend against trading with more than 1 contract.
Also consider using more than just the minimum amount you can post in your account. Say you have 400 dollars and that's the minimum, one bad trade and you're out.
Usually this doesn't happen though because the initial margin is (or should be) higher than that.
Also you may find that your expectations of the learning process may differ from the reality.
The other thing you may want to seriously consider is to start off not trading real money but trading SIM (simulated money) to see how you fare. Some of the more disciplined people trade many many months with SIM before committing real money.
If I flip a coin 1,000,000 times, what are the odds of me wasting my time?
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Oh for sure, I am practicing on SIM trading as I type, and I do not even intend to trade a single penny for 6-8 months. But thank you for the suggestion, I honestly appreciate it thanks for everything really!
But do I have the math right? If I put in $400 dollars, I can buy 1 contract and if i lets say down the road in the future, want to buy 2. I would need $800.
Hmm, alright sounds good. I plan to invest $700-800 if the minimum requirement is $400.But just wanted to iron out the details, now still one more thing left to understand, which is taxations.
Given that I am from Toronto, Ontario, Canada and I am trading on a US market. I don't know the procedure or the tax rate that applies to us.
I know in the US its 60/40 rule, but would you happen to know the canadian one? I tried looking at our CRA website but not much luck tbh. Or like what form the brokers fill out for canadian clients and if there is any tax we have to pay in US, since we are trading on the US market.
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Yeah, I would have to use a broker that accepts canadian clients or a canadian broker if there are any tbh. Most websites that sell their "trading course" (a big rip off but that's a whole new topic for some other thread) and also happen to be in Toronto, direct them to ninjatrader.
But Ninjatrader doesn't seem to be taking Canadian clients, and TD Ameritrade has really bad reviews and security flaws so I want to stay away from there. I like the Ninjatrader trading software, but AMP is no longer supported since 2015.
So I don't know now where to look or who to find that is reputable and good. In the interim I'm just practicing and trying to get better.