Last Updated on June 19, 2022 by Quantified Trading
Can you make money swing trading futures. Swing trading is a unique style of market speculation where positions are held beyond the trading day but not more than a few days or weeks. This style can be used to trade virtually any financial market that allows price speculation.
Since the futures market allows traders to speculate and profit from the price movements of an underlying asset, you may be wondering: “Can I swing trade futures, and how much do I need?”
Yes, you can swing trade futures if you understand how the market works and formulate a suitable strategy for trading it. Interestingly, you do not need lots of money to start trading futures since you can have access to up to x20 leverage and there are even mini and micro futures contracts, which do not require huge capital.
Sure, you would like to know more about swing trading futures. We will explain it to you under the following subheadings:
- What is swing trading?
- What you need to know about futures
- Can you swing trade futures?
- How much do I need to swing trade futures; can I trade futures with $500?
- How to start swing trading future
- Strategies you can use to swing trade futures
- A practical example of futures swing trading
- Is Swing trading illegal?
What is swing trading?
Swing trading is a style of trading that aims to profit from medium-term price moves. Those are the sort of price moves that occur as individual impulse swings on the daily timeframe, and they tend to last from a few days to a few weeks — traders rarely hold their swing trades for several weeks.
While a swing trade normally lasts overnight beyond the trading day, but it does not usually stay open more than a few weeks. Thus, swing trading lies in the middle of the spectrum between day trading where the trades do not last overnight and position trading or investing where trades are left for several months, years, or even decades.
For most swing traders, technical and quantified analysis is the best method to identify tradable opportunities in the markets. For example, we have provided more than 60 swing trading strategies on this website, all based on quantitative reasoning and logic:
The beautiful thing about swing trading is that, unlike in day trading where traders spend all day monitoring and analyzing the price charts on the lower timeframes, swing traders only need to check their systems and strategies at the end of the trading day or every four hours. As a result, swing trading is considered the best trading style for a beginner or an experienced trader who wishes to keep their full-time job and trade part-time.
What you need to know about futures
Futures trading is the business of buying or selling futures contracts, which can be full, mini, or micro contracts.
What are futures contracts?
Futures contracts are agreements to deliver (or take delivery of) an underlying commodity or financial asset, at a predetermined price, on a certain delivery date when the contracts will expire.
There are futures contracts for many different products, which can be commodities, such as energies, metals, and agricultural products; financial securities, such as equity indexes, individual stocks currencies, and cryptocurrencies; and non-financial products, such as the volatility index and weather forecast. These products have different trading profiles and as such, different contract specifications.
It is important to know that a futures contract has no real value by itself but, instead, derives its value from the underlying asset, such as crude oil or the S&P 500 index.
Unlike stocks, a futures contract has a shelf life — which means, it can expire. Different futures products have different expiration schedules. While some have a new contract every month, some have a new contract every quarter. There are also some contracts that have slightly more unusual schedules.
Based on the quantity of the underlying asset traded, a futures contract can be classified as follows:
- Full/Standard futures contracts
- Mini futures contracts
- Micro futures contracts
For example, the standard gold contract is 100 troy ounces, while the mini and micro contracts are 50 and 10 troy ounces respectively.
In the futures market, the minimum price change is called a “tick”, and it may have the value of 0.0001, 0.01, 0.25, 0.5, 1, or anything. The value of a tick varies with the product, and its dollar worth is dependent on the contract size traded — that of a micro contract is usually a tenth of the standard contract, but that of a mini contract is measured differently.
Basically, a futures contract will contain this information:
- Contract size
- Minimum price fluctuation
- Price fluctuation value (ticks/points)
- Expiration schedule
- Terms of settlement (speculators don’t take delivery)
How futures trading works
Both industry stakeholders and speculative traders use the futures market to their advantage. To understand how futures trading works, let’s consider the scenario of a speculative trader, such as yourself.
Let’s assume that you anticipated the coronavirus-induced equity selloff, and since you know that investors would rush to gold as a safe-haven asset to protect their capital during the crisis, you expected gold to rally hard.
So, in January 2020 when gold was trading around $1,520, you decided to buy 2 micro gold contracts when your trade entry setup appeared on the gold chart.
Your broker required 1 500 USD initial margin to open 1 micro gold contract, and interestingly, you had $4,000 in your trading account, which was enough to cover for 3 000 USD needed to carry 2 micro gold contracts.
Gold prices rallied as you expected, crossing the 2 000 USD mark in the first week of August 2020. By then, your trade was already making about 4 800 ticks in profit. You decided to take your profit and get out, knowing that the 2 000 USD level is a psychological resistance level that can force a price decline and that the contract would expire the next month.
- Your trade parameters were as follows:
- 2 micro contracts = 20 troy ounces = 2.00 USD per tick
- Price rallied 4 800 ticks
- Your profit = 2 USD x 4800 = 9 600 USD
Since you sold the contract before expiration, you avoided taking actual delivery of 20 troy ounces of gold. If you had wanted to hold your position beyond the contract expiry, you could roll into the next contract month by simultaneously selling the current one and buying the new one.
Can you trade futures?
Yes, you can trade futures as long as you are above the legal age of 18 years and have the necessary capital and knowledge to participate in the futures market. Speculating on the futures market is not an easy task; it requires a lot of trading skills, even more than is required to trade equities.
Do not trade futures if you don’t understand how the market works. Futures contracts are leveraged instruments, which can significantly magnify your losses as well as it can maximize profits.
Can you swing trade futures?
Yes, you can swing trade futures if you are of the legal age for trading, but you need to know how the market works so that you don’t expose your capital to too much risk. Futures is a unique market where trades are offered in contracts that have expiration schedules. Swing trading futures involves buying and selling a contract over a few days or weeks, without the intention of taking delivery of the product.
So, in as much as you can swing trade the contracts, you have to be careful not to buy into contracts that are already approaching expiration dates. If you buy a contract that is about to expire, you may run the risk of taking delivery on expiration or having to roll over to the next contract month, which would cost you more in transaction fees and reduce profitability.
How much do I need to swing trade futures; can I trade futures with 500 USD?
How much you need to swing trade futures depends on the product you intend to trade and the contract size. As different products vary in prices, the initial margin required by the exchange and your broker for trading the products vary.
Also, for any particular product, the initial margin varies with the contract size. For example, the initial margin set by the exchange for a standard gold contract is 11 000 USD, while those of the E-mini and micro contracts are 5 500 USD and 1 100 USD respectively. See the table below.
While the initial margin is the minimum amount required to open a trade in that contract, you need more than that to trade the contract. In fact, the actual amount you need to start trading also depends on your account risk percentage and the number of ticks you set your stop-loss order. If you are to risk 2% of your account balance per trade and use a 40 tick stop loss, you will need at least 2 000 USD to trade a micro contract of gold.
While micro futures contracts make it possible to swing trade futures with a small capital, it would be difficult to trade futures with 500 USD. However, some futures brokers offer nano contracts that require about 100 – 200 USD initial margin. If you can find such a broker, you can trade futures with $500.
How to start swing trading futures
Here are the steps to follow if you want to start swing trading futures:
- Learn about the market: The best way to learn how the market works is to enroll in a swing trading course so you can learn from an experienced trader. You may also subscribe to a signal service that will furnish you with monthly Trading Edges if you don’t have time to learn how to trade.
- Open a futures brokerage account: Find a good futures broker that offers reliable online charting and trading platforms, as well as price data for trading futures contracts. Some of the factors to consider when before opening a futures brokerage account include the minimum deposit, trading fees, and any hidden charges, payment methods, and ease of withdrawal from your trading account.
- Choose the contract to trade: There are futures contracts for different products, such as equities, commodities, equity indexes, commodity indexes, and many more. Choose the contracts you want to trade and study the markets to know the factors that move the markets and the expiration schedules of the contracts.
- Create a trading plan and start trading: Now, develop a trading plan that specifies how you approach your swing trading. Your trading plan should specify your entry and exit strategies, trade management procedures, and every other thing that can affect how you trade. When you are ready, you can start trading.
Strategies you can use to swing trade futures
There are many swing trading strategies used by futures traders, but the most reliable ones fall into any of these three categories:
- Mean-reversion strategies: Mean reversion strategies are based on the concept that the price usually reverts to its mean anytime it moves significantly aware from it. The key is to identify when the price has moved significantly aware from the mean and is likely to revert to the mean. Some of the indicators used to create these strategies include the Bollinger Bands, RSI, moving averages, and price action setups.
- Momentum strategies: These strategies aim to trade along the direction of the trend when a pullback has completed and a new impulse wave is about to start. Some of the tools used for these strategies are trend line, support and resistance levels, reversal candlestick patterns, and oscillators.
- Breakout strategies: Breakout strategies aim to trade in the direction of the emerging trend after the price has broken above a resistance level or below a support level. Futures traders often use volume and open interest to confirm the reliability of a breakout. While some breakout traders place their trades immediately there’s a breakout, others wait for the price to retest the breakout level before placing a trade.
Is Swing trading illegal?
Is Swing trading illegal? No, swing trading is not illegal in any way and nobody will prosecute you for swing trading futures the right way. Provided you are of the legal age of 18 years, you can open a futures brokerage account and swing trade futures. Apart from the age restriction, there is no other thing stopping you from swing trading. However, be sure to understand the market first.
You can read more about how to use futures in swing trading here.