New to Day Trading
What is day trading?
Day trading , also referred to as short term investing, is defined by the Financial Industry Regulatory Agency (FINRA) as the buying and selling, or the selling and buying, of the same security on the same day in a margin account. This definition encompasses all securities, including options.
Who is a pattern day trader?
A pattern day trader is defined in Exchange Rule 431 (Margin Requirement) as any trader who executes 4 or more round-trip day trades within any 5 successive business days. If, however, the number of day-trades is less than or equal to 6% of the total number of trades that trader has made for that five business day period, the trader will not be considered a pattern day trader and they will not be required to meet the criteria for a pattern day trader.
Minimum account balance for day traders?
The minimum account balance for any trader who based on his personal trading history has been classified a pattern day trader is $25,000.00. The required $25,000 must be deposited in the account prior to any trades being placed and must be maintained at all times.
Are there any exceptions to these rules?
Day trading rules apply to all stock transactions, equities, bonds and securities with only one exception -
- Futures Contracts
As a futures trader or an emini futures trader, pattern day trading rules do not apply. The only minimum account balances are those imposed by your broker. The minimum amount with some brokers is as low as $2,000.00. Additionally, emini futures traders are not restricted by the up-tick rule in regard to short sales, and also receive preferential tax treatment. Always check with you broker in regards to margin requirements and consult a CPA in all tax related matters.
What is an emini?
Emini Futures trading primarily involves trading stock indexes which are generally one-fifth-sized versions of the standard stock index futures contract. Eminis are settled in cash to the spot value of the index. E-mini contracts are offered exclusively on the CME Globex electronic trading platform.
eminis are 'mini' versions of indexes, traded 'e' for 'electronically'
E-minis were introduced in 1997 in response to the steady rise in equity values over the prior 15 years. The concept of eminis was to develop a futures contract that might be accessible to active individual traders exclusively via computer as opposed to the traditional pit or “open-outcry” venue.
How do I trade emini futures?
Before trading eminis, there are some essential steps. If, for example, you'd like to trade the S&P 500 emini market, you should:
- Learn about the market & the S&P 500 index via a recognized emini trading school.
- Study emini charts until you fully understand they information they convey.
- Discuss with your broker the emini trading strategy you will employ.
- Calculate margin requirements and minimum balances required for your emini methodology.
- Write a business and trading plan supported by your emini goal setting worksheet.
With a basic understanding of how to trade the S&P 500 emini market and emini trading principles, you should then paper trade until you are consistently profitable to be sure your trading plan has merit and truly give you a definable edge.
Emini "paper trading" allows you to practice trading, in real time, without risking your money.
In your quest to find an emini broker, make sure they offer access to a trading simulator.
Do not leave the simulator until you are consistently profitable using the emini trading strategy you have learned. As you become more successful at trading e-mini futures, more contracts may be added.
When emini trading losses are encountered after "going live", return to the trading simulator.
Smart traders realize this is a marathon not a sprint. Return to the simulator as often as required.
How much money do I need to trade the E-Mini?
Contract specifications vary for each commodity or contract. The minimum opening balance with many brokers may be as low as $2,000.00. While this is sufficient to open an account and gain access to the trading simulator, it is not enough realistically to begin active trading and / or day trading.
Consider opening your account with at least $5,000.00. This leaves room for draw downs and also losing trades which are both a part of the real world of trading. In the beginning you must use aggressive risk management. You must always use hard stops and make sure the broker you choose offers a trading platform that allows for "bracket" orders. A bracket order will automatically establish your stop loss and your target, the second your order is filled.
Unless you follow these guidelines you will need a lot of money to trade E-mini futures.
What are the E-Mini Margin requirements?
The E-Mini S&P 500 initial margin is $5625.00. Emini Day traders are able to trade all the stock indices intra-day with many brokers for as little as $500.00. As you move away from the indices and into the futures contracts of Gold, Crude, Soybeans, and others, margins are substantially higher. Check with your broker and also directly with the CME. Keep in mind, e-mini margins are subject to change without prior notice.