By definition, volatility is the variance of price action from a mean value over a specific period of time. Although many traders hesitate to engage the markets during especially active cycles, day trading futures can be a great way to secure profits. In fact, the enhanced liquidity and robust depth-of-market make active periods some of the best times to trade futures.
Of course, fully accounting for volatility is an essential part of profiting from the seemingly chaotic price action. If you ignore the potential for extraordinary swings in P&L, losses can mount quickly from an unfortunate turn in the market. Rapidly developing short-term trends are relatively common and may be extremely lucrative in futures, but it’s best to respect their downside at all times.
The Three Fundamental Drivers of Profitability
When it comes to producing strong returns when day trading futures, you need three components to ensure gains: leverage, liquidity, and volatility. Here’s a quick overview of how each of these elements plays a key role in fostering profits:
- Leverage: The opportunity to generate large gains from a relatively small amount of risk capital attracts many people to the discipline of day trading futures each year. With margin requirements typically falling between 3-12 percent per futures contract, active traders are able to fully customize position sizing. This is an especially important characteristic during periods of heavy participation and action. Applying properly sized positions is a vital part of weathering hyperactive price action. If your positions are too large, premature liquidations and margin calls become possibilities.
- Volatility: Much like the application of financial leverage, pricing volatility can be a double-edged sword. Although a timely spike or plunge in asset values may boost the trading account’s balance, it may also create abnormal losses. Being aware of key events on the economic calendar, applying technical tools, and consulting experienced market participants can help you place volatility into a manageable context.
- Liquidity: One of the key calling cards of the futures markets is consistent liquidity. Having adequate market participation ensures that there’s an abundance of orders ready to be filled at each price point. Accordingly, a majority of the most popular futures markets feature considerable depth. This attribute promotes trade-related efficiency via constant order flow, minimal slippage, and tight bid/ask spreads.
Given the availability of leverage, consistent pricing volatility, and regular liquidity, day trading futures can be a profitable undertaking during turbulent financial times. From engaging the global energy complex to the world’s leading equities indices, many short-term opportunities are available on a session-by-session basis.
However, to fully capitalize on the potential of volatility, adhering to a comprehensive trading plan is an absolute necessity. Fully understanding the consequences of extreme volatility and heightened leverage is an integral part of successfully navigating chaotic periods in the markets.
Getting Started Day Trading Futures
If you’re interested in becoming an active futures trader, an ideal first step is to talk with a market professional. Having a detailed understanding of your goals, resources, and skills is a key part of getting off on the right foot in the marketplace. A veteran of the futures industry can help you align your trade-related objectives to your resources in a fashion that promotes success.
To learn more about how you can begin day trading futures, schedule your free one-on-one consultation with the team at StoneX today. With more than two decades of experience in the futures industry, our staff is ready to help make your experience in the marketplace a positive one.
