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Learning Futures with Low Risk and Sound Strategy

January 5, 2022 by Frank Kaberna| Futures 101

Most New Year’s resolutions are doomed from the start. You create too lofty a goal that must be accomplished in 365 days and usually commit too intensely in the first 30 and fall too easily back into bad habits by day 100.

A similar practice often thwarts people’s plans for further financial literacy. “This year, I’m gonna take on futures,” can start with a manageable target of one trade per week or even month and build with your confidence. But what’s a manageable target in futures?

A Data Driven Approach to Broaching Futures

Two things make resolving to start trading futures in 2022 easier than in years past:

  1. The size of futures, and thus their potential risk, is much smaller than traditional products thanks to Small and Micro futures.
  2. Historical data on most futures markets is available through your platform and online services like this one.

Starting with one of the smallest futures and simplest strategies out there, you have the Small 2YR Yield futures (size: $750) and daily standard deviations (range: +/-$33).* Daily standard deviations lend to day trading – a strategy that can make getting started relatively low stakes considering the position won’t survive the close. 

Examples of Day Trades

Though there are two fundamental ways of interpreting opportunity relative to standard deviations – contrarian and trending – these examples will focus on the former.

S2Y \ Long Day Trade Example

Source: dxFeed Index Services (https://indexit.dxfeed.com)

On Friday, December 10, 2021, S2Y fell outside of its 1 standard deviation range to the downside, which could have posed a buying opportunity in the futures.

Gain exposure to popular markets with standardized tick values and expiration dates on the Small Exchange. See why the smalls are making a big splash. >>

S2Y \ Short Day Trade Example

Source: dxFeed Index Services (https://indexit.dxfeed.com)

On Wednesday, December 15, 2021, S2Y rallied outside of its 1 standard deviation range to the upside, which could have posed a selling opportunity in the futures.

S2Y \ No Day Trade Example

Source: dxFeed Index Services (https://indexit.dxfeed.com)

On Thursday, December 30, 2021, S2Y stayed inside its 1 standard deviation range, which could have posed no opportunity in the futures.

A Data Driven Approach to Closing Futures

It hopefully comes as no surprise that the same data that gave you a reason to open futures can help you decide where to close the position. Here are the two routes to exiting your trade:

  1. Taking a fraction of the standard deviation in profit or loss like ½, for example, would cause you to close the position when your daily P/L shows +$16 or -$16.
  2. If neither target is hit by the end of day- 4pm Central for Small futures – then you can simply close as that time approaches.

Resolutions can seem insurmountable when built up to unscalable heights in the mind, but almost any goal is achieved with small, short-term accomplishments. Let the day trade in Small futures be your vehicle to finally getting into futures this year.

*Values taken on 12/30/21

—

To learn more about how the Small Exchange is merging the efficiency of futures with the clarity of stocks, make sure to subscribe to their YouTube channel and follow them on Twitter so you never miss an update.

© 2022 Small Exchange, Inc. All rights reserved. Small Exchange, Inc. is a Designated Contract Market registered with the U.S. Commodity Futures Trading Commission. The information in this advertisement is current as of the date noted, is for informational purposes only, and does not contend to address the financial objectives, situation, or specific needs of any individual investor. Trading futures involves the risk of loss, including the possibility of loss greater than your initial investment.

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Filed Under: Futures 101

About Frank Kaberna

Frank Kaberna is the head content strategist at the Small Exchange. He produces everything from brochures to videos that inform on the Small Exchange’s products. After earning a mathematics degree from the University of Michigan, Frank traded interest rates at the Chicago Board of Trade. He then worked on the tastytrade Network as a content producer and on-air talent before landing at the Small Exchange.

Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2023 StoneX Group Inc. All Rights Reserved

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Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2023 StoneX Group Inc. All Rights Reserved

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