The popularity of futures trading continues to grow, driven by historic market events and products such as CME Group’s Micro E-mini futures which allow traders to participate in the same markets as Wall Street at a fraction of the cost.
When it comes to day trading specifically, futures offer considerable advantages over individual stocks. This is especially true for short selling, a trading strategy that has gained prominence in recent months. Below, we’ve highlighted some of the advantages of day trading futures over stocks and how short selling fits into the picture.
No Added Costs
One of the biggest benefits of short selling futures is cost. Unlike stocks, which require traders to borrow shares from brokers and pay additional fees, futures allow traders to take short positions without having to pay more money.
The same holds true for account minimums. While stock traders are required by FINRA to hold a minimum of $25,000 in their accounts to comply with the Pattern Day Trader Rule, futures traders aren’t subject to the same limitations and can trade with a smaller account balance. This effectively lowers the barrier for entry into the markets and makes it easier for traders to seek out new opportunities.
When it comes to short selling, another type of flexibility is also important—in this case, the lack of the Uptick Rule. Designed to prevent sellers from driving down the prices of securities, the Uptick Rule dictates that a short sale needs to be conducted at a higher price than the trade before it. However, futures markets are exempt from this rule and short sellers can take short positions without having to worry about any possible repercussions.
The Ability to Trade Without Additional Margin
Another advantage of short selling futures is the fact that traders aren’t required to have an additional margin in their accounts. Futures margin is the amount of money traders must have in their brokerage account to protect against possible losses on an open trade.
This means that the standard margin—which usually ranges from 3% to 12% of the notional futures contract value—is sufficient when taking a short position. When compared to stock trading, this is a significant shift. Under federal regulations, short selling stocks requires accounts to have 150% of the short sale value when the sale is initiated.
Flexibility to Go Short on Your Terms and Timeline
One of the other benefits of short selling futures is flexibility. Unlike stocks, which can only be traded for 6.5 hours a day during regular trading sessions, futures can be traded almost 24 hours a day, six days a week.
This creates new trading opportunities as well as the ability to carry out more frequent trades during a given period.
Get Started With NinjaTrader
You can start day trading with NinjaTrader with as little as $400 and prepare for the live markets with unlimited risk-free simulated trading. When you are ready for live trading, keep your trading costs low through deep discount commissions and $50 margins on Micro E-mini futures.
NinjaTrader supports 100,000+ traders with an award-winning trading platform, always free to use advanced charting, market analytics, and trade simulation. Get started with a free trading demo featuring 14 days of live futures market data.
*All short selling involves “unlimited” risk potential, since theoretically price can rise indefinitely. As such, only risk capital should be used for futures trading and traders should employ risk management methods whenever possible.
Risk Disclosure: Futures, foreign currency and options trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing one’s financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.