Day trading futures isn’t as complicated as it sounds. The futures market is actually a conglomerate of various markets that buyers and sellers use as a way to enter and exit into futures contracts. Typically, pricing is based on an open bid system where each offer will be matched electronically. Each futures contract states a monetary amount that is to be paid on the contract and the date that it is to be delivered. Many people choose to stay away from day trading futures markets because they believe they actually have to take physical delivery of the commodity that they hold on their futures contract. However, this is simply not true.
Defining a Futures Contract
As an analogy, consider your basic understanding of signing an agreement with your mobile phone carrier. As you have entered into a two-year agreement, you know you will receive a specific number of minutes or data transfer at a specific price every month for the following two years. The contract you hold with your mobile phone carrier is nearly identical to a futures contract. You have agreed to receive a specific product at a date in the future with the terms and the price firmly set in place. You know that over the next two years you will receive your product no matter how much prices have risen from the time you signed the agreement. People who get involved in day trading futures understand that it is an agreement between two specific parties over a short and long position. The party in the short position agrees to deliver the futures commodity while the one that receives the commodity is in the long position.
Settling the Futures Contract
Every day, the amount of the futures contract will rise or fall based on the market price. Using an effective day trading system backed by proven futures trading strategies, traders buy and sell their futures contracts up until the point the contract reaches its expiration date.
Like all highly active and centralized marketplaces, the futures markets are a valuable source for critical sentiment indicators and market information, that can be used and analyze for trading purposes. Experienced traders and those wanting to learn the fundamentals of day trading futures study technical indicators to make decisions about buying and selling futures contracts. By using technical analysis and commodity trading software they can determine the ideal time to buy or sell.
The best day trading software will include ways to detect technical patterns and formations and trading indicators to formulate and execute futures trading strategies that can generate huge profits for the investor.
For more from Erich, visit the Indicator Warehouse for additional futures resources and NinjaTrader Indicators.