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Futures is not for swing trading
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Futures is not for swing trading

  #31 (permalink)
Redwood City, CA
 
Trading Experience: Advanced
Platform: SierraChart and TWS
Broker/Data: Interactive Brokers
Favorite Futures: ES, CL, GC, 6E, ZN/ZB, FGBL, and options
 
Posts: 12 since Aug 2017
Thanks: 3 given, 28 received

Hey @kazz

I tend to dislike unregulated markets, as there are risks I can't quantify. Also, in my (limited) experience trading spot forex through IB and TDA (both, I believe, reputable), it seems that there's just too much adverse movement, leading to stop runs, that I don't see on the currency futures. It's been a while since I last traded spot forex, though.

Regarding using a $600 account for micro futures. Take the Euro futures for example. They have a notional value of 12.5k usd. That means you'd be trading with about 20x leverage, which is *a lot*, especially for swing trading.

Let's now think about what you would have to endure. For the sake of this simple calculation, let's assume an average daily movement of about 50 pips. That translates into about a $60 change in your account balance, daily.

In other words, even with just 1 micro contract in the $600 account, we're talking about a +/- 10% daily movement!

Given that your plan is to swing trade, it's not unreasonable to imagine maybe 3 or 4 daily losses in a row. And then, you are almost out - no more money to even trade a single micro contract!

So, it's not only the overnight margin that you have to think about, but also what is your risk of ruin. Leveraging at 20x, you have a very high probability of blowing out that account!



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  #32 (permalink)
London
 
 
Posts: 146 since Apr 2018
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bfreis View Post
Hey @kazz

I tend to dislike unregulated markets, as there are risks I can't quantify. Also, in my (limited) experience trading spot forex through IB and TDA (both, I believe, reputable), it seems that there's just too much adverse movement, leading to stop runs, that I don't see on the currency futures. It's been a while since I last traded spot forex, though.

Regarding using a $600 account for micro futures. Take the Euro futures for example. They have a notional value of 12.5k usd. That means you'd be trading with about 20x leverage, which is *a lot*, especially for swing trading.

Let's now think about what you would have to endure. For the sake of this simple calculation, let's assume an average daily movement of about 50 pips. That translates into about a $60 change in your account balance, daily.

In other words, even with just 1 micro contract in the $600 account, we're talking about a +/- 10% daily movement!

Given that your plan is to swing trade, it's not unreasonable to imagine maybe 3 or 4 daily losses in a row. And then, you are almost out - no more money to even trade a single micro contract!

So, it's not only the overnight margin that you have to think about, but also what is your risk of ruin. Leveraging at 20x, you have a very high probability of blowing out that account!



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Thanks @bfreis I see what you mean as, unlike spot forex, even with micro currency futures the minimum you can trade is one contact. With spot you have the flexibility of going down to micro or nano lots.

In terms of leverage, living in the U.K., I'm used to quite generous leverage. Currently you get 30 to 1 for a major currency pair although you can dial this down by controlling your position or lot size.

What do you consider as the most leverage you would take on trading futures and what would you regard as the bare minimum to start with micro currency futures?

Thanks.

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  #33 (permalink)
Legendary post derailer
Indianoplace, IN
 
Trading Experience: Intermediate
Platform: SierraChart
Broker/Data: CQG
Favorite Futures: All Micros, especially the ones that move
 
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kazz View Post
...what would you regard as the bare minimum to start with micro currency futures?


I can't answer for @bfreis but $5K would be a wonderful number to start out on M6E with.

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  #34 (permalink)
Redwood City, CA
 
Trading Experience: Advanced
Platform: SierraChart and TWS
Broker/Data: Interactive Brokers
Favorite Futures: ES, CL, GC, 6E, ZN/ZB, FGBL, and options
 
Posts: 12 since Aug 2017
Thanks: 3 given, 28 received

I tend to agree with @Rrrracer. A $5k-ish account would make me feel comfortable for swing trading something like M6E.

Thag would mean a 2.5x leverage. For something that moves 0.5%-1.5% daily, that would mean typically no more than a 4% move in the portfolio balance in a day. I can (and do!) live with that

But then, again, each one has their own personal risk tolerance.

Cheers!

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  #35 (permalink)
London
 
 
Posts: 146 since Apr 2018
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@Rrrracer and @bfreis

Many thanks for your replies, this has really cleared up a few things for me in terms of assessing account size in relation to the futures instrument one wishes you trade.

So by definition, does this indicate that you'd need a $50,000 account you trade the main 6E futures?

Thanks.

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  #36 (permalink)
Redwood City, CA
 
Trading Experience: Advanced
Platform: SierraChart and TWS
Broker/Data: Interactive Brokers
Favorite Futures: ES, CL, GC, 6E, ZN/ZB, FGBL, and options
 
Posts: 12 since Aug 2017
Thanks: 3 given, 28 received


kazz View Post
So by definition, does this indicate that you'd need a $50,000 account you trade the main 6E futures?

For purely direction swing trading, sounds like a reasonable risk parameter to me (again, personal risk appetite). That would mean, like in the M6E example, about 2.5x leverage, which feels to me like a pretty reasonable amount of leverage for swing trading.

In reality, what I typically do is slightly different. I typically add many positions into my account, including futures in multiple markets as well as options. That way I have a very "dynamic" risk exposure - I have directional exposure, volatility exposure, and intra- and inter-market correlation exposure.

For example, right now I have a position in Gold future options that would be "equivalent" (in terms of purely directional exposure) to about a 10x leverage (ie, the "dollar amount" of exposure is about 10x my account size). But because of the combination of options I bought and sold, the dynamics of the position are quite different than "10x the daily changes of gold prices". The daily changes are smaller than that, and they fit into my risk parameters.

Similar thing with Crude Oil futures - I have a relatively complex position, spanning multiple months in 2019, using futures and options. The purely directional exposure equivalent (i.e., "how many barrels of crude oil I 'control'") is way beyond multiples of my account size, but the dynamics of the position make them fit into my risk parameters.

So, I'd say, starting out, yeah, that ratio you mention sounds reasonable (one 6E contract per $50k in the account). As you learn about and add more instruments into your account, that number might evolve over time!

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  #37 (permalink)
London
 
 
Posts: 146 since Apr 2018
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bfreis View Post
For purely direction swing trading, sounds like a reasonable risk parameter to me (again, personal risk appetite). That would mean, like in the M6E example, about 2.5x leverage, which feels to me like a pretty reasonable amount of leverage for swing trading.

In reality, what I typically do is slightly different. I typically add many positions into my account, including futures in multiple markets as well as options. That way I have a very "dynamic" risk exposure - I have directional exposure, volatility exposure, and intra- and inter-market correlation exposure.

For example, right now I have a position in Gold future options that would be "equivalent" (in terms of purely directional exposure) to about a 10x leverage (ie, the "dollar amount" of exposure is about 10x my account size). But because of the combination of options I bought and sold, the dynamics of the position are quite different than "10x the daily changes of gold prices". The daily changes are smaller than that, and they fit into my risk parameters.

Similar thing with Crude Oil futures - I have a relatively complex position, spanning multiple months in 2019, using futures and options. The purely directional exposure equivalent (i.e., "how many barrels of crude oil I 'control'") is way beyond multiples of my account size, but the dynamics of the position make them fit into my risk parameters.

So, I'd say, starting out, yeah, that ratio you mention sounds reasonable (one 6E contract per $50k in the account). As you learn about and add more instruments into your account, that number might evolve over time!

Thanks @bfreis

Great post as always, there is lots absorb in there. I have so much l need to learn...

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  #38 (permalink)
Mistake Maker
San Jose, CA
 
Trading Experience: None
Platform: NinjaTrader
Broker/Data: Dorman Trading, Kinetick
Favorite Futures: NQ 630/930-0900/1200 PST/EST, maybe only one 1-3 times per day.
 
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kazz View Post
Hi, I've been learning about futures but, the more l look into it, the more I feel that it's geared towards day traders and not swing or position traders.

If my perception is wrong I'd love for some of the more experienced forum members to enlighten me and other newbies.

My inclination is towards futures as l like the leverage and the fact that the exchange is regulated. However, I live in London and, due to working a 9-5 job, cannot day trade. Therefore my preference is to swing or position trade and I'm not sure if futures offers this option.

You can trade the US overnight session can't you? Sometimes there are some good strategies that setup intraday in the overnight US session. You can also swing trade, your stop will be much wider depending on which time frame your setup is on.

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  #39 (permalink)
London
 
 
Posts: 146 since Apr 2018
Thanks: 165 given, 75 received

Thanks @teamtc247

From what I understand day trading during the US overnight is not a good idea due to poor liquidity?

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  #40 (permalink)
Mistake Maker
San Jose, CA
 
Trading Experience: None
Platform: NinjaTrader
Broker/Data: Dorman Trading, Kinetick
Favorite Futures: NQ 630/930-0900/1200 PST/EST, maybe only one 1-3 times per day.
 
teamtc247's Avatar
 
Posts: 902 since Dec 2012
Thanks: 623 given, 1,037 received



kazz View Post
Thanks @teamtc247

From what I understand day trading during the US overnight is not a good idea due to poor liquidity?

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It just depends, there can be setups and then it can be slow. From what I noticed, the setups overnight are for the most part pretty clean, and fit my trading methodology. I trade during the day only.

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