Returns achievable for Futures trading

[beachlife]

"Bang for buck" can you think of a better alternative?

yes, CFD's. You can trade the futures contracts but are not limited to the contract sizes so you can position size for your stops much better, but the spread does make them a touch more expensive.

No matter what type of derivative you trade, opions, futures, warrants, cfd's, it still comes down to the combination of risk v's reward and win loss ratio.

Can you make $50k pa from a $7500 account, I wont say impossible because Larry Williams turned $10k into $1m and his daugher turned $10k into $100K at age 16. So I would say very difficult to make that sort of return, but it has been done.

 

[Caveroute]

I tried stocks and then options and then after 2 or 3 years of getting it wrong and frustration I turned to futures, didn’t work straight away but learning about risk was the turning point in may ways along with mechanical trading, maybe get hold of a copy of long term secrets to short term trading by Larry Williams, this book presents strategy’s and gives insight into mechanical trading, think of it as a book about fishing and you now nothing about fishing so don’t believe the strategy’s presented or you will get cleaned out !!!, take it as examples of the type of stuff that can work, Larry takes you to his river and shows you how to fish he doesn’t however tell you the best spots or what bait he uses…………..this is the bit you need to figure out, the book though is the best on trading that I have read.

Also I would say learn about trading in general and about risk specifically, there’s no rush either the markets are not going to disappear.

I cannot reiterate enough though, done correctly and in my opinion futures offer the least risk and highest reward but done wrongly in regard to risk and this is without having a strategy that works or not you will get destroyed, you could buy the Spi futures at the open everyday with a $200 stop (8 points) now that may not work but it would take you along time maybe even years to run down a small account of say $5000, in the past 12 months you would maybe showing a decent profit?.

About 16K on one contract ytd in fact.

With some smarts to determine the direction, when to exit and how to actually get in on the open.

 

[TheUnknown]

How does one learn how to trade it? anyone got an example of a trade to see how it works?

 

[Valued]

Why can't you do the same thing with CFDs though? The benefit of CFDs is you can limit your leverage. Of course, the profits will be far less. You could also use OTC CFDs with a high leverage but guaranteed stop losses of up to 5% from the last close. Wouldn't CFDs be safer then? You could trade at up to 20x leverage with a maximum guaranteed risk. In that sense, would CFDs be better if you were holding overnight and there is a risk of a gap?

I guess what I am getting at is what's better, futures or CFDs for say going long or short on the ASX200, by way of example. Does it matter if you day trade vs holding overnight? I believe trading CFDs will cost more in fees too and you also are open to the risk of paying dividends if you short without first checking when stocks are going ex dividend.

For some reason commsec does not appear to have an option to trade futures. I can't find it anyway. You can go nuts on CFDs though. I need to change brokers anyway. Commsec is changing their site next year and their stockbroking fees are stupidly high.

 

[CanOz]

1.) How does one learn how to trade it? 2.) anyone got an example of a trade to see how it works?

1.) If you mean futures then the answer Lots and Lots of screen time.

2.) Plenty of examples around, looks for posts by Trembling Hand, or even some from Tech/A and Pavillion in the "transition to futures trading" thread...

 

[beachlife]

Why can't you do the same thing with CFDs though? The benefit of CFDs is you can limit your leverage. Of course, the profits will be far less. You could also use OTC CFDs with a high leverage but guaranteed stop losses of up to 5% from the last close. Wouldn't CFDs be safer then? You could trade at up to 20x leverage with a maximum guaranteed risk. In that sense, would CFDs be better if you were holding overnight and there is a risk of a gap?

I guess what I am getting at is what's better, futures or CFDs for say going long or short on the ASX200, by way of example. Does it matter if you day trade vs holding overnight? I believe trading CFDs will cost more in fees too and you also are open to the risk of paying dividends if you short without first checking when stocks are going ex dividend.
.

You can.

A couple of small disadvantages.
1. You pay interest on long positions, but only if held overnight.
2. Your prices are the spread, so you can get flicked out or miss out. eg the spread might reach 5025/5026. Lets say your stop is 5025, it may never really trade there, it might trade at 5026 and go back up, but if the spread goes there for a couple of seconds, you will be filled with a cfd.
The other way is the same. Say the spread is 5025/5026 and your target is 5026. The market may trade at 5026 (meeting the ask) and then reverse. Because the bid never got to 5026, you will not be filled. The spread has to reach 5026/5027 for the cfd to be filled. I have missed profits a couple of times because of this, but not too often.
3. The spread might be a bit wider.

But for me the ability to position size exactly out weighs these. Except for an MT4 Ea that I run on 15min chart, all of my end of day trades are using cfd's, no matter if bhp, msft, oil, beans, or fx.

 

[Valued]

You can.

A couple of small disadvantages.
1. You pay interest on long positions, but only if held overnight.
2. Your prices are the spread, so you can get flicked out or miss out. eg the spread might reach 5025/5026. Lets say your stop is 5025, it may never really trade there, it might trade at 5026 and go back up, but if the spread goes there for a couple of seconds, you will be filled with a cfd.
The other way is the same. Say the spread is 5025/5026 and your target is 5026. The market may trade at 5026 (meeting the ask) and then reverse. Because the bid never got to 5026, you will not be filled. The spread has to reach 5026/5027 for the cfd to be filled. I have missed profits a couple of times because of this, but not too often.
3. The spread might be a bit wider.

But for me the ability to position size exactly out weighs these. Except for an MT4 Ea that I run on 15min chart, all of my end of day trades are using cfd's, no matter if bhp, msft, oil, beans, or fx.

So you go long on stocks using CFDs too? I was only going to use CFDs to short stocks or go long on indices otherwise I just buy the underlying asset. Less risk and cheaper. That being said, if you wanted to go long with leverage then CFDs are probably better than a margin account. I dislike paying interest.

 

[tech/a]

So you go long on stocks using CFDs too? I was only going to use CFDs to short stocks or go long on indices otherwise I just buy the underlying asset. Less risk and cheaper. That being said, if you wanted to go long with leverage then CFDs are probably better than a margin account. I dislike paying interest.

Seriously interest in the scheme of things is or should be of no consequence
You'll lose more on spread!!

 

[RADO]

Why can't you do the same thing with CFDs though? The benefit of CFDs is you can limit your leverage. Of course, the profits will be far less. You could also use OTC CFDs with a high leverage but guaranteed stop losses of up to 5% from the last close. Wouldn't CFDs be safer then? You could trade at up to 20x leverage with a maximum guaranteed risk. In that sense, would CFDs be better if you were holding overnight and there is a risk of a gap?

I guess what I am getting at is what's better, futures or CFDs for say going long or short on the ASX200, by way of example. Does it matter if you day trade vs holding overnight? I believe trading CFDs will cost more in fees too and you also are open to the risk of paying dividends if you short without first checking when stocks are going ex dividend.

For some reason commsec does not appear to have an option to trade futures. I can't find it anyway. You can go nuts on CFDs though. I need to change brokers anyway. Commsec is changing their site next year and their stockbroking fees are stupidly high.

Futures win hands down. The margin for ASX200 which would be the SPI is around $7,500 approximately 5% of face value the margin for the CFD contract from memory was .05% around $700 sounds good but in reality once your down 30 point your in margin call territory not to mention the $25 commission for the spread. With AMP Futures a round turn on the SPI cost around $2.70 with IB its $5 with Futures you can also do advanced order entries like breakout OCO orders and bracket OCO orders with an exit strategy if your using platforms like ninjatrader, esignal and multicharts. You can't do that with CFD'S

An example of a 'Breakout OCO order with an exit strategy' would be just say the SPI opens at 5250 you can place an order to go long if the price goes to 5255 and an order to go short if the price drops to 5245 simultaneously, once one order is filled the other is cancelled and a stoploss is placed you also have the option of setting a target exit. This can be all done with one click of a button pretty much.

 

[beachlife]

Futures win hands down. The margin for ASX200 which would be the SPI is around $7,500 approximately 5% of face value the margin for the CFD contract from memory was .05% around $700 sounds good but in reality once your down 30 point your in margin call territory not to mention the $25 commission for the spread. With AMP Futures a round turn on the SPI cost around $2.70 with IB its $5 with Futures you can also do advanced order entries like breakout OCO orders and bracket OCO orders with an exit strategy if your using platforms like ninjatrader, esignal and multicharts. You can't do that with CFD'S

An example of a 'Breakout OCO order with an exit strategy' would be just say the SPI opens at 5250 you can place an order to go long if the price goes to 5255 and an order to go short if the price drops to 5245 simultaneously, once one order is filled the other is cancelled and a stoploss is placed you also have the option of setting a target exit. This can be all done with one click of a button pretty much.

Valued - yes even for stocks because I want the leverage. My trades are short term so I dont care about interest.

RADO, using the $7500 account, lets say you want a SPI trade with 90 point stop based on ATRx1.5 for example. With the futures that means you must risk 90x25 = $2250 which is 30% of account. If you want to limit risk to just 5%, ie $375, you can just buy 375/90= 4.1 so 4 CFD's. CFD's allows people with small accounts to learn with less risk.

And as you say for the equivalnet of 1 spi, 25 CFD's would only require a margin of around $700, so less margin is needed.

The OCO and stop orders are all available with cfd's (except stop with limit entry) and spi cfd's are available so you can follow the spi contract price exactly, and also the SPI night market. You are no longer limited to the asx200 index.

 

[Valued]

What about when looking at stocks and not indices? How do futures compare with CFDs then? Commsec points out in their PDS that if you short a stock you have to pay borrowing costs. They don't say what these are.

I guess it's all about analyzing what the best vehicle is to gain the exposure you want.

 

[skc]

It seems to me that in terms of return on initial outlay, futures trading can provide by far the best return and "bang for buck".

Let's assume that someone is a proficient trader; incredibly disciplined and with great risk management.

Assume one contract (of whatever it is) requires, say, $7,500 to be in your account.

I trade the FTSE, so I'll use that as an example. I don't think it's unrealistic at all to assume that a good trader can make, say, 50 points per week on average (almost AU $1000).
That's around $50,000 for the year, only requiring an initial $7,500 (not sure what the FTSE amount is) or so.

What are other people's thoughts?
"Bang for buck" can you think of a better alternative?
It seems to buck the 10-30% return thinking.

You are correct in your maths, but is it really realistic? What is calculated here is the amount of capital required to hold positions and is that sense, futures probably win the "bang for buck" and "lowest cost" contest.

But what you need to consider is obviously drawdown and risk per trade etc. Ask TH about what is his maximum drawdown vs capital required to hold positions (assuming he trades his own money). I'd bet you it's going to be many multiples of that.

Then think about it in terms of reward vs risk. Many are familiar with the 2% rule in swing trading stocks. If you are day trading futures, you'd probably use a much lower number... and I'd be surprised if it was anything more than 0.5% per trade. If $7500 is truely all the capital you have - than it's <$40 or something like 1 tick. Clearly that's not workable. On the other hand, the annual profit of $50k means you'd earn 1250R. Again, seems highly unlikely.

On any individual year, it may be possible to make $50k profits from $7.5k capital. To treat that as an annual expectation, however, will likely lead to much disappointment.

And if someone is really that proficient (who should have more than $7.5k already), that 1 contract in year 1 would turn into 7 contracts in year 2, 50 contracts in year 3 and 300+ contracts in year 4. Then we will see how proficient he/she really is at that size.

As a day trading venture I don't get why people would choose stocks.

You got to trade what you know I guess. Personally I trade stocks because I think it's easier. Stocks give you lots of information for you to assess and triangulate. I can see what price movements make sense and what doesn't. I have however zero ability in that in futures

 

[Valued]

Thanks SKC. All this talk of massive returns is both alluring and dangerous. My entire strategy is boiled down to carving out smaller more consistent returns by swing trading stocks and indices both long and short without leverage (using cfds for indices and to short stocks). Using highly leveraged futures (or highly leveraged cfds) to trade indices is clearly not within the strategy at this point in time. That, and I am leveraged somewhat already since I am partly using money I will end up having to pay the ATO next financial year. Using leveraged funds to buy leveraged derivatives seems like a poor financial plan.

Completely going to ignore the allure of getting millions of dollars for nothing.

 

[tech/a]

Looking from the futures side of the fence.

I personally trade technically.

(1) Its visual
(2) I can see if I'm correct or In correct immediately
(3) I can give myself a strict entry exit and stop point.
(4) I can trade any time frame
(5) I can manage my trades with pin point accuracy.

Personally I prefer Futures.

(1) I can trade long and short
(2) I can trade multiple time frames
(3) I can pick up a normal persons wage ($1300) in 30 min
with 1 - 3 contracts. (40 Tick on the FTSE X 2 contracts)
(4) I need only trade for a few minutes to an hr or so when I want.
(5) I can if I wish set and forget.
(6) I can make a decision in seconds without having
to quantify everything.(Very Time efficient).
(7) I don't have to trade everyday.
(8) I can position trade in one direction and counter trade opportunities in the other.
(9) I can trade from anywhere.
(10) Personally I find that Futures tend to conform more reliably to technical analysis.

I don't know why there is so much who ha about trading Size.
It impresses some.(Size to one maybe normal to another)
Its all in relativity.
Small fish and consistent catches are sweet.

Completely going to ignore the allure of getting millions of dollars for nothing.

Why does any trading need to have a million dollar tag on it and why an allure?
Particularly Futures.
I think if you ignore Futures (It scares many---lack of understanding of trade and risk management
being the main culprit I think)

You are missing out on the true essence of financial freedom though trading!

 

[Valued]

I guess it's the idea of laying out the relatively small amount of money for one contract but then getting a huge interest equal to say $130,000. Of course, you set your stop losses. It just feels like you are using very low capital to generate higher returns then you really should be able to. It feels like I am trying to get rich quick and that I am being greedy and that fate will strike me down for daring to think that big.

 

[tech/a]

I guess it's the idea of laying out the relatively small amount of money for one contract but then getting a huge interest equal to say $130,000. Of course, you set your stop losses. It just feels like you are using very low capital to generate higher returns then you really should be able to. It feels like I am trying to get rich quick and that I am being greedy and that fate will strike me down for daring to think that big.

You can change fate with a click of the mouse!

Once you learn how to fish!------

 

[pavilion103]

I also find that there is a difference between being on the FTSE all night trying to find a stack of trades and coming on for only a couple of hours and IF there is a great setup, then taking it, if not then leaving it.

Even 2 or 3 decent trades (20-40 points) in a week can be highly profitable. Heck it might even be one trade of 40 or 50 points!

The reason I thre in the word "risker" in the OP is because I knew people would be barking on about risk.
I personally believe that you can manage risk very well with it. Particularly if like Tech, you are moving your stop to BE ASAP.



People talking about this whole get rich quick mentality obviously don't understand the hours that go into understanding this stuff in the first place.
But once you do, it's the best financial pay-off per hour devoted that I can think of.


Tech, you mentioned making a wage in 30 mins at times which isn't unrealistic.
This really is mindblowing if you think that most people work 40 hours for that.

 

[Bronte]

We just adore Index Futures.
We have traded them for nearly 20 years now...

Merry Christmas to one and all at ASF
'Trading the SPI' was all about Futures trading.

 

[minwa]

But once you do, it's the best financial pay-off per hour devoted that I can think of.


Tech, you mentioned making a wage in 30 minutess at times which isn't unrealistic.
This really is mindblowing if you think that most people work 40 hours for that.

You can't really compare trading to a per hour wage. Obviously you can make huge amount in a little time but it does not take into account many other factors such as:
1. its not 100% replicable. You might not be able to make the same amount the next 30 minutes. You are even less likely to repeat it every single time next few 30 minutes. I don't think the best day trader in the world can randomly pick few sessions to trade and make $1300 every single time without fail for the rest of his life.
2. does not take into account loss. People can have a killer trade and said they make X few grand in X few minutes and compare it to a wage but if you add up their total trades and their losses including all their time spent, it's not going to be the $X/hour they were claiming.
3. no guarantee. You cannot enter into a contract with the market that everyday you will trade this four hours and it will give you the $1300/30mins for that whole shift. You might sit for hours at $0/hour or negative ($1000)/hour.

 

[pavilion103]

Obviously.

It just shows what is possible.