One of the best ways to understand the benefits of trading futures is to 'do the math' and see how an active trader could use index futures to go from just above break-even returns to a higher level of profits from the same trades.
(A hypothetical example)
Our hero, Charlie Candlestick, is an active trader and had worked diligently to refine his approach to trading the opening gap in the S&P 500 ETF (SPY). Although he had a clear edge and his performance metrics looked good on paper, he wasn't making much, if any, in real profits. How could this be possible? Here are the details of his typical monthly performance:
1. $25,000 account ($50K purchasing power using broker margin)
2. Used max purchasing power of 500 shares per trade (at ~ $100 average purchase price for the SPY)
3. Charlie is willing to risk up to 2% per trade, but can't do so due to limited purchasing power.
4. Risked $250 (1%) per trade (500 shares x .50 stop)
5. Average gap win = $250 profit (500 shares x .50 target)
6. Win rate of 60%
7. Averaged 10 trades per month
8. Total gross profit per month = $500 (6 wins x $250 - 4 losses x $250)
9. Expenses are $375/month for commissions, data and membership fees.
10. Net profit per month is $125 (1/2 % return)
Fortunately, Charlie completed the MTG Understanding Index Futures course and was able to start actively trading the S&P futures contract (ES) in lieu of ETF's. Here's an example of his new performance results:
1. Same $25,000 account
2. Used conservative purchasing power to trade 2 contracts per trade
3. Risked $500 (2%) per trade (2 contracts x 5 point stop x $50 per point)
4. Average gap win = $500 (2 contracts x 5 points target x $50 per point)
5. Win rate of 60%
6. Averaged 10 trades per month
7. Total gross profit per month = $1000 (6 x $500 - 4 x $500)
8. Expenses are $375/month for commissions, data and membership fees.
9. Net profit per month is $625 (2.5% return)
In this example, Charlie was able to trade his exact same methodology. By trading futures he doubled his leverage per trade, managed his downside risk and improved his bottom line fivefold!
Are you in the same boat as Charlie and ready to learn how to better exploit your edge? Information about trading futures is available all over the internet and is even free in many places. However, it can take days, if not weeks, to find all of the necessary information to start trading. Coach Mock has put together a comprehensive course on trading index futures that will enable you to get up to speed quickly and maximize the return on your time.
Learn more about Index Futures