Got to thinking about this... do you say this because of the high leverage and margin requirements that are inherent in futures? If so... would you say that swing trading options is more risky (and potentially more rewarding) than swing trading ETFs, because options also are leveraged?
This $50K is my play money that I hope to grow into nice windfall or gravy, I don't NEED it for retirement. So I am willing to take on some leverage to get good returns over time. That being the case, I'm wondering if I should look more at options than ETFs.
Options are more leveraged than ETF's. That is for sure.
If you choose to trade options, you better do A LOT of research. As one trader put it, "options are like playing 3-D chess."
If you are looking for "good returns over time", invest in your education before you put a dollar in the market.
Educate yourself, then trade ETF's until you prove your methodology, then you can switch to more leveraged markets. Trading ETF's doesn't have to be the only thing you ever trade, but it should be the first you put real money into.
I hope this helps.
The following user says Thank You to rocksolid68 for this post:
I think, despite what certain book technicalities might suggest, that if you have risk capital in the region of 50k, most people here would agree that should suffice to get you started.
Huge warning no.1: I have come across people who did not know what they were doing and they wiped out even more than that in a short amount of time.
Onto the markets... conventional wisdom suggests that the most liquid markets are the ones to focus on. Given you're thinking about Futurues, these would be
Equities indices such as the SP500 e-mini, Nasdaq e-mini, EuroStoxx 50, DAX....
US Treasuries such as 10 Years, 30 Years, 5 Years...............
Currencies such as EURUSD, JPYUSD............
Commodities such as Crude Oil, Gold...........
These above are some of the more popular options. Huge warning no.2: Each of the above instrument has a different 'personality'. This translates at its most basic into different volatility for each instrument.
For instance, 10 Years US treasuries is a very slow-moving instrument. Crude Oil or DAX are very fast moving.
This means that, typically, you can find yourself opening a 1 lot position with Crude Oil and 3 seconds later you may be down by 80 dollars.
So you need to think carefully about which instrument to pick.
Again conventional wisdom suggests to get used to watch several instruments on a simulated account for a bit to get a feel for which one speaks to you most.
Regarding your exposure calculation
I am not familiar with this book but the outcome does not sound right. Perhaps someone else that trades the ES can chip in and offer some recommendations here.
The following user says Thank You to xplorer for this post:
@payooli I want to qualify what I said a bit more: I don't trade the ES but my understanding is that several people on this forum would typically use an indicative stop loss of 4 to 6 ticks per contract. That would work out at a risk of 50-75 USD per contract per trade (+ commissions), which is much much lower and reasonable than what was posted above.
EDIT: i also need to clarify that the risk I'm talking about refers to intraday trades.
Last edited by xplorer; July 7th, 2016 at 08:19 PM.
Thanks @solotrader! Always looking for hard facts, this is good info. Just curious, given the markets of today, what methods that in your experience do tend to provide alpha (at least, enough alpha to make the endeavor worthwhile)?
Cross sectional momentum (buying winner, selling losers) seem to work better than absolute momentum (trend following).
I am heavy into arbitraging micro-anomalies in price action, a.k.a. price patterns. I'm using a tool called Price Action Lab to identify them. It's more exciting than getting into a position and worrying every day if it goes against you.