What is a Daytrade?


August 4, 2011 (updated April 1, 2020)

We hear the term daytrading get thrown around very loosely and it has come to mean the entering and exiting of the same trade in a short period of time or at least within the same day. In the stock market they are legally referred to as Pattern Daytraders and need a minimum account size of $25,000, but futures daytraders do not fall under this regulation and can open an account with as little as $3,000 ($500 for Micros). Also, in the news it is frequently used in reference to stock trading where its definition may not be as important, but when we talk about a daytrade 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. At this point it is enough to say that margins on positions held overnight or past the market close generally have much higher requirements than trades just done as a daytrade, so it is important to understand exactly what qualifies as a daytrade. In order for a futures trade to qualify as a daytrade you must exit it before the market closes, which in the case of the Emini S&P (ES and MES) is 4:00p CDT.

So, if you buy an Emini S&P at 10:00am make sure you sell it before the market closes at 4:00p, and it is probably not a good idea to wait until the last second in case your clock is off or you have a computer issue. Although overnight margins are set in stone by the exchanges, daytrade margins can be set by your brokerage firm, which means the Emini S&P daytrade margin will vary from broker-to-broker.

Currently with ApexFutures the daytrade margin for the Emini S&P is $500 while the Chicago Mercantile Exchange or CME’s required position trade margin is $11,100, over twenty times as much. So, let’s say your account has $3,000 in it and you buy 2 Eminis, your daytrade margin requirement is $1,000 (2 X $500), therefore you have more than enough money to do that trade. As long as 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 $22,200 (2 X $11,100) 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 $21,900 ($22,200 – $3,000) or exit the position. If you do this too many times your broker may revoke your daytrade margin privileges and require you to have the full margin even just for daytraders.

Now you understand that it is important to get out of your positions by the close so, your next question might be when am I allowed to get back in and still qualify as a daytrade? With most firms the answer is usually at or a little before the regular New York Stock Exchange open which is 8:30a CDT. But, with the ApexTrader trading platform you can trade with reduced daytrade margins anytime the market is open as long as you get flat (out of your position) by the next market close. Except for Friday afternoons the Emini S&P opens back up just 60 minutes after it closes and trades all the way until the next afternoon when it closes at 4:00p again. So, you can take advantage of the lower daytrade margins anytime the market is open, just be sure to be flat when the market closes at 4:00p CDT.

As an accounting note, any trades done after 4:00p are considered a part of the next days’ business and will show up on your brokerage statement as such. This totals 23 hours of trading after you take out the two closed sessions, that you are allowed to “daytrade” with ApexFutures. On Sunday the market reopens at 5:00p and will trade until the close of Monday at 4:00p. If you remember anything from this lesson it is to make sure you do not have a position going into the 4:00p close if you want to be using daytrade margins for the Emini.

Lower margins are not the only advantage to daytrading, most people would agree that doing a daytrade has many advantages over doing a position trade. The reasons are you may not be exposing yourself to possible violent moves overnight, gap openings and poor fills during less liquid times and will probably sleep better at night knowing that you do not have an open position. So, this is another good reason to not take a position “home with you.”

One warning I need to give you in regards to using lower margins and then trading more contracts is that obviously the more leverage you are using (the more contracts you trade per amount in your account) the wilder the swings in your account balance, this is a good thing when you are trading well, but a very bad thing when your are not. So, remember you do not have to trade the maximum allowable contracts that your daytrade margins allow, you should just trade what you are comfortable with and what makes good money management sense.

Online trading has inherent risk due to system response and access times that may vary due to market conditions, system performance, volume and other factors. An investor should understand these and additional risks before trading. Options involve risk and are not suitable for all investors. Futures, options on Futures, and retail off-exchange foreign currency transactions involve substantial risk and are not appropriate for all investors. Please read Risk Disclosure Statement for Futures and Options prior to applying for an account.

*Low margins are a double edged sword, as lower margins mean you have higher leverage and therefore higher risk. All commissions quoted are not inclusive of any fees, unless otherwise noted. Apex does not charge for futures data, the CME charges $2-12 per month depending on the type of data you require.

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