Some people make one or two options trades a month, and that’s okay. But for others — the day traders, the hyper-scalpers, the optionistas —the 6.5 hours in the trading day are simply not enough. If that’s you: It’s okay. You’re about to discover how to trade options 24 hours a day: Futures trading.
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When is the Futures Market Active?
While the typical options market is only open from 9:30 AM EST to 4:00 PM EST, the futures market runs 24 hours a day, Monday through Saturday, and Sunday night at 6:00 PM EST. Common ticket symbols for the American futures market include the ES (the E-Mini S&P 500 Index Futures), the NQ (the E-Mini Nasdaq Futures), YM (Dow Jones Futures), TF (Russell 2000 Futures) and CL (Crude Oil Futures).
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What is Futures Trading? What is a Futures Contract?
Futures trading is a way for market participants to either hedge risk or to speculate on upcoming price moves. Sound familiar, options traders? It should! Stock futures are traded in contracts just like options.
Just like an options contract, a futures contract refers to a standardized quantity of a certain stock or commodity (for instance, 1,000 barrels of oil) that you are agreeing to buy at a set price on a set date. Sound like a call option? It’s pretty similar.
Securities: What Can You Trade Futures On?
There are many, many securities you can trade futures on. Stock indexes around the world, cryptocurrency, most currencies, interest rates, energy like oil, coal & gas, foods like cheese, coffee and butter, grains like corn, soybean & wheat, livestock and meats like lean hogs and live cattle, and metals like aluminum, copper & silver.
Is There Pattern Day Trading on Futures?
No.
The futures market is cash-settled, meaning there is no requirement for physical delivery of the underlying asset or security. For example, you might buy a futures contract on 100 shares of the SPX index — however, because it’s cash-settled, you won’t be required to interact with those shares, you’ll simply settle the trade out in its cash-value.
It works the same for something like oil futures. You wouldn’t want to be on the hook to buy or deliver 1,000 barrels of oil — you just want the cash for being right about your speculative trade. The most important thing to remember, though, is that cash-settlement means pattern day trading does not apply to futures trading. If you can stomach the commissions, you can make as many high-speed trades as you like regardless of account size.
Bottom Line: Why Trade Futures
Futures have a wide variety of uses. They can help predict the opening direction of the market. They can be used to hedge larger stock market moves against adverse market moves since futures operate on leverage. Futures can also be used to speculate on the market in the same way options are. Despite the ‘always-on’ nature of futures, it’s not a game — traders must continue to exercise the same discipline they use when trading any other financial instruments.
