Making Sense of Day Trading Contracts

Day trading contracts are used for buying and selling of financial instruments. The specifications of these contracts need to be thoroughly understood before venturing into day trading activity.

Initially, only professional investors, speculators, and financial institutions could avail of day trading. Most of the day traders are investment firm or bank personnel operating as experts in equity investment plus fund management. Casual traders have greatly taken to day trading because of technological advances, especially online trading, and amendments in legislation.

Now day trading applies to the purchase and sale of financial instruments in the same day of trading in order to generally close all positions prior to the markets closing down at the end of the day of trading. This is in contrast to after-hours trading. Day traders are traders, who take part in day trading.

A futures contract refers to a uniform contract that is transacted on the futures exchange for buying and selling a specific underlying asset at a specified future date and at a pre-fixed price. This specified future date is known as the final settlement date or delivery date. The futures price is the pre-determined price. The settlement price is the underlying instrument price as on the date of delivery.

Comprehending the terms and conditions of the contract is extremely vital when trading any futures contract. You can come across these specifications by accessing the exchange’s web site where the contract trading is taking place.

Ensure you are acquainted with this basic information:

1. The precise size and kind of contract

Particulars regarding quantity size and how much

2. The tick size as well as its value

Now a tick refers to the least movement allowed in a contract price. In the case of soybeans, per bushel it comes to 0.25 cents, which compares to $12.50 for every contract.

3. The method of quoting prices

For example, the price of soybean price is quoted in cents per bushel.

4. The number of months before the maturity of the contract

Being a day trader, certainly you are keen on trading the contract that has the greatest daily volume. Generally, this is the next expected to conclude, called the front. It is advisable for the day trader to check with the information given by the exchange regarding each contract’s daily transaction volume prior to the beginning of each session of trading.

5. The last day of trading of the contract

In the case of soybeans, in the contract month, it is the 15th calendar day. This means you cannot continue trading the contract after that.

6. The contract’s ticker code(s)

It is desirable to go for the electronic contract offer instead of the one that is traded on the floor. Keep away from trading platforms that offer no backing for floor-traded contracts, due to the holdups in completing orders. With electronic contracts, the orders are completed immediately.

7. The hours of trading of the contract

Electronic contracts just about always have lengthened trading hours as opposed to those traded on the floor. Nevertheless, it is normally best not to go for day trading of these contracts beyond the customary hours of floor trading hours since volumes tend to be low.

8. Restrict information

This lets you know what takes place once there is a great shift in price. Certain markets take a break from transactions for a particular time interval whereas others tend to be sealed at the limit.

9. The contract margin

This informs you about the sum of money that needs to be deposited to facilitate the opening of the exchange and to maintain positions. However, it is advisable to obtain this monetary figure from your agent since brokerage firms at times state margin levels that are different from the ones quoted.

Be careful or you may find yourself in a difficult position when the markets move down or move up at the open since the complete scale of a thirty-point move usually is not evident on a short-range chart of the existing session.

Normally day traders make purchases on money borrowed, anticipating that they will garner greater profits via leverage, but they also face the risk of greater losses. Day trading is very hazardous and can lead to considerable monetary losses in an extremely short time span.

Source: http://www.readycontracts.com

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