A Day Trade: What is it and Why it Matters

In futures trading, a day trader is an investor who buys and sells futures contracts within the same trading day with the aim of profiting from small price movements.  There is  usually a very little minimum required account balance, and you can fund your account with $2,000 or $500 for Micros.  In the stock market, day trading is referred to as Pattern Day Trading.  Pattern Day Traders must adhere to specific rules, such as traders are required to maintain a minimum account balance of $25,000 if they execute four or more day trades within five business days.

When we talk about a day trade in futures trading, it is a very specific term and has significant ramifications on your allowed margins and therefore the number of contracts you can trade.  Margin is the minimum amount of money you need to have in your account to be able to enter a position or positions held overnight or past the market close.  Margins on positions held overnight or past market close have much higher requirements.  In order for a futures trade to qualify as a day trade you must exit your position(s) before the market closes, which for the Emini S&P (ES and MES) is 4:00pmCDT.  Although overnight margins are set by the Exchanges, day trade margins can be set by the clearing firm and introducing broker. 

Currently with ApexFutures the day trade margin for the Emini S&P is $750 while the Chicago Mercantile Exchange or CME’s required position trade margin is $12,980, over fifteen times as much. So, let’s say your account has $3,000 in it and you buy 2 Eminis, your day trade margin requirement is $1,500 (2 X $750), therefore you have more than enough money to do that trade. If you sell the 2 Eminis before the market closes, all is good, but let’s say you forget to exit the trade and 4:00p passes. Your trade is now considered a position trade and requires $25,960 (2 X $12,980) in margin, but you only have $3,000 in your account! So, you are now on a margin call and may get a nasty email and/or call from your broker stating you need to wire in the remaining $22,960 ($25,960 – $3,000) or exit the position. If you do this too many times your broker may revoke your day trade margin privileges and require you to have the full margin even just for day traders.

With the StoneX Futures platform, you can trade with reduced day trade margins any time the market is open as long as you are flat (out of your position) by the next market close.  However, during overnight trading hours (3:30pm – 7:45amCT), for your own safety day trade margins are little higher at 25% of initial margin.  For example, on Sunday the market reopens at 5:00pm CT and will trade until the close of Monday at 4:00pmCT. Keep in mind, to use day trade margins for the Emini, you cannot have position(s) in your account(s) past 4:00pmCT market close.

As an accounting note, any trades done after 4:00pm CT are considered  part of the next days’ business and will appear on your brokerage statement as such. This totals 23 hours of trading after you take out the closed session, which you are allowed to “day trade” with ApexFutures.

Other potential benefits to day trading are you may not expose yourself to possible violent moves overnight, gap openings, poor fills during less liquid times, and you may be able to sleep better knowing you do not have any open positions.  Keep in mind, low day trade margins are a double-edged sword, as lower margins mean you have higher leverage and therefore higher risk.  With the more leverage you are using (the more contracts you trade per amount in your account), the wilder the swings in your account balance.  You do not have to trade the maximum allowable contracts that your day trade margins allow, you should trade what you are comfortable with.