Getting Started with Futures Trading: A Guide to Using NinjaTrader Indicators
Master the essentials of futures trading and enhance your strategy with powerful indicators.
Futures Trading Series
You're reading part 1 of our 5-part guide.
Ever wondered how professional traders navigate the fast-paced world of futures markets?
This guide demystifies futures trading for beginners, offering a clear path to understanding futures contracts, the NinjaTrader platform, and powerful indicators like those from Steady Turtle.
Your Path to Trading Success
From spotting key market levels to making informed decisions, this series will equip you with the tools to trade with confidence. By the end of this article, you'll understand the basics of futures contracts and be ready to explore trading platforms.
Beginner Tip: New to trading? Start by understanding these basics before placing your first trade. Many beginners skip this step and face costly learning experiences later.
What are Futures Contracts?
What is a Futures Contract?
A futures contract is a standardized legal agreement to buy or sell a specific asset at a predetermined price on a specific future date. Unlike stocks where you own the asset, with futures you're trading a contract that represents the underlying asset, allowing traders to speculate on price movements or hedge against market risk without requiring immediate ownership.
Real-World Example:
A corn farmer worried about falling prices might sell corn futures at $6/bushel for December delivery. Meanwhile, a cereal manufacturer concerned about rising costs might buy those futures. Both parties now have price certainty, regardless of market fluctuations.
These contracts are traded on regulated exchanges like the CME Group, ensuring transparency and standardization. This system, originally developed for agricultural markets, now covers virtually every major asset class.
Futures contracts are the backbone of price stability in volatile markets.
— Warren Buffett
Types of Assets in Futures Contracts
Commodities
Includes agricultural products, energy resources, and metals.
- Corn (ZC): 5,000 bushels
- Crude Oil (CL): 1,000 barrels
- Gold (GC): 100 troy ounces
Financial Indices
Major stock market indices traded as futures.
- E-mini S&P 500 (ES): $50 × index
- E-mini Nasdaq (NQ): $20 × index
- E-mini Dow (YM): $5 × index
Currencies
Major global currency pairs as futures.
- Euro (6E): €125,000
- Japanese Yen (6J): ¥12,500,000
- British Pound (6B): £62,500
Interest Rates
Government bonds and rates futures.
- 10-Year T-Note (ZN): $100,000 face value
- 30-Year T-Bond (ZB): $100,000 face value
- Eurodollar (GE): $1,000,000 face value
*Contract specifications shown are approximate and subject to change. Always verify current specifications with your broker.
Key Terminology in Futures Trading
Understanding these terms is crucial for navigating the futures market:
Contract Size
The standard quantity of the asset in a futures contract.
Expiration Date
The date when the contract expires, requiring delivery or cash settlement.
Margin
A deposit to open a futures position, enabling leverage.
What is Leverage in Futures Trading?
Leverage in futures trading allows investors to control large market positions using relatively small amounts of capital. This financial mechanism amplifies both potential profits and losses, as small price movements in the underlying asset create magnified percentage returns on the initial margin. Futures typically offer much higher leverage than stocks, which is why they're considered high-risk instruments requiring careful risk management.
Long Position
Buying a futures contract expecting the price to rise.
Short Position
Selling a futures contract expecting the price to fall.
Tick Size
The smallest price movement allowed for a futures contract.
Contract Month Codes
Letters that identify contract expiration months in futures symbols.
Purpose of Futures Markets
Futures markets play critical roles in the financial ecosystem:
Price Discovery
Trading activity determines fair market values by aggregating all participants' views.
Example: Futures prices for corn reflect global supply forecasts, weather patterns, and expected demand months before harvest.
Risk Management
Hedging protects against adverse price movements for producers and consumers.
Example: An airline buys jet fuel futures to lock in costs and protect against rising prices, ensuring stable ticket pricing.
Speculation
Traders seek profits from price predictions, providing essential market liquidity.
Example: A trader buys gold futures anticipating inflation fears, profiting from price increases while making markets more efficient.
Market Impact
These three functions create a robust ecosystem where:
- Businesses can plan with greater certainty
- Markets reflect future expectations efficiently
- Price volatility is reduced in physical markets
- Capital allocation becomes more efficient
Frequently Asked Questions
Essential questions about futures trading fundamentals
Farmers sell corn futures to lock in a selling price and protect against falling prices. This hedging strategy provides price certainty, allowing farmers to plan their operations with financial stability regardless of market fluctuations. For example, if a farmer locks in $6/bushel for December delivery, they're protected if market prices drop to $5/bushel by harvest time.
The leverage ratio is 18.75:1, calculated as $225,000 ÷ $12,000. This high leverage explains why futures are considered high-risk instruments. A 1% market move ($2,250) represents an 18.75% change in your margin investment. This amplification works in both directions—magnifying profits when the market moves in your favor, but also significantly increasing losses when it moves against you.
The letter "Z" in the futures symbol "ESZ23" represents the December expiration month. In futures contract coding, each month has a designated letter:
The "23" in the symbol represents the year 2023. So, ESZ23 is an E-mini S&P 500 futures contract expiring in December 2023.
Ready to learn more? Continue to the next article in our futures trading series!
Summary
Key Takeaways
Ready to Master Your Trading Platform?
Continue with Part 2: Introducing NinjaTrader.
Frequently Asked Questions
Common questions about futures trading
No, most retail traders never take delivery. You can close your position (offset it) before the expiration date. Over 95% of futures contracts are closed before expiration. Cash-settled contracts like ES and NQ don't involve physical delivery at all - they simply convert to cash at expiration.
Most brokers require a minimum of $2,000-$5,000 to open a futures trading account. However, to trade comfortably, you should consider having at least $10,000-$15,000, especially for contracts like ES or NQ. This provides a buffer against market volatility and avoids immediate margin calls with small price movements. Micro E-mini contracts (MES, MNQ) offer lower capital requirements but still require proper risk management.
Major index futures like ES and NQ trade nearly 24 hours a day, 5 days a week, with only a short break each day. Trading sessions are typically divided into:
- 1 Regular Trading Hours (RTH): 9:30 AM - 4:00 PM Eastern Time (highest volume)
- 2 Pre-Market: 8:00 AM - 9:30 AM Eastern Time
- 3 After Hours: 4:00 PM - 5:00 PM Eastern Time
- 4 Overnight Session: Continues until the next day
Different contracts have different trading hours. Check your specific contract's schedule with your broker or the exchange.
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