Futures trading can be an excellent way to capitalize on market movements, offering traders the chance to profit in both rising and falling markets. These products are particularly attractive because of their leverage, meaning you can control a large position with relatively little capital. They also trade in a straightforward manner, similar to stocks, without the complexity of options (no need to worry about the Greeks, for example). This guide will walk you through the essentials of getting started, focusing on popular futures markets, learning technical analysis, and managing risk. We’ll also cover how prop firms can help you if you’re undercapitalized.

What Are Futures?

Futures are leveraged financial products that allow you to trade on the future price of an asset, such as a stock index, commodity, or currency. They function similarly to stocks in that they move in price as the market fluctuates, but unlike options, you don’t need to worry about time decay or the Greeks. This makes futures more straightforward for many traders.

The key point to understand about futures is their leverage. Leverage allows you to control a large contract size with a smaller amount of capital, which can lead to significant profits—or losses—on relatively small price movements. For example, the E-mini S&P 500 (ES) futures contract allows traders to control $50 worth of the S&P 500 index for each 1-point move in the index.

Getting Started with Futures Trading

1. Focusing on Index Futures (ES & NQ)

If you’re just starting out, the most popular futures products to trade are index futures, particularly the E-mini S&P 500 (ES) and Nasdaq 100 (NQ). These are highly liquid contracts, meaning they have high trading volume and tight spreads, which makes entering and exiting positions easier. These are the main two products we focus on in the Trader’s Thinktank.

Why ES and NQ?

• Liquidity: The ES and NQ contracts are traded heavily, so you don’t have to worry about wide spreads or slippage.

• Consistent Movement: These indexes often exhibit predictable movements during key market hours, especially during the first two hours of the trading session, when most professional traders are active.

• Great Setups: ES and NQ frequently offer trading opportunities, unlike many other trading products. On a typical trading day, there are plenty of opportunities to hit your daily goal. There are a number of different strategies that can be used when trading index products such as ES and NQ.

Speaking on strategies - One of the easiest strategies for beginners to master is known as the Two Hour Trader framework. The Two Hour Trader framework offers a focused approach on trading high-probability setups in these popular markets, especially during the most active parts of the day. This method can help beginners avoid overtrading and focus on quality setups.

2. Learning Technical Analysis

Once you’ve selected your markets (like ES or NQ), it’s crucial to develop a working knowledge of technical analysis. Technical analysis involves reading charts and understanding price movements to understand how price will unfold next.

Key concepts to study include:

• Support and Resistance: Levels where the price tends to reverse. These are frequently posted as Levels of Interest (LOIs) in the Trader’s Thinktank.

• Market Stucture: Market structure refers to the underlying framework that defines the organization and dynamics of a market. It encompasses various elements that shape price action and market behavior.

• Indicators: Indicators are tools, though most are misleading for the new and developing trader. If you are in years 0-2 of your development, you can jumpstart your progress by avoiding most indicators.

The Two Hour Trader framework emphasizes a minimalistic approach to technical analysis, avoiding overcomplicating your chart with unnecessary indicators, and focusing on high-probability trades during key market times. It is a great framework to utilize while you are learning the ropes of technical analysis.

Using Prop Firms If You’re Undercapitalized

One of the main hurdles for new traders is the capital required to trade futures. Because these are leveraged products, brokers require you to maintain a certain amount of money (called margin) in your account. If you’re starting with a small account, prop firms can be a great solution.

What Is a Prop Firm?

A proprietary trading firm (prop firm) provides traders with capital in exchange for a percentage of their profits. To qualify for funding, most prop firms require you to pass a trading evaluation to prove your trading ability. Once funded, you trade with their capital and can keep a portion of your profits.

Popular Prop Firms for Futures:

• Topstep: Straightforward rules and a great trading platform (TopstepX).

• MyFundedFutures: A couple of different paths (starter and expert) for the developing trader, and some of the fastest payouts in the industry. Use code “OPINICUS” to get the best available discount.

• TakeProfitTrader: The easiest and least restricted withdrawal process once funded. Use code “OPINICUS” to get the best available discount.

If you’re just starting out and don’t have the capital to trade ES or NQ futures, or simply don’t want to put your own capital at risk while you learn and develop, then passing one of these funding evaluations can give you access to the capital you need. Many traders use frameworks like the Two Hour Trader to help them stay disciplined and pass these evaluations.

Risk Management in Futures Trading

Since futures contracts are leveraged, risk management is essential to protect your account from large losses. Proper risk management ensures that you can stay in the game long enough to learn and become profitable. The trading strategy that you choose to use when you are starting out should have a defined, objective stop for every trade. Many of the developing traders I speak with struggle because they don’t know where to put their stop loss or the basics of good risk management.

Use Stop Losses

A stop loss is an order to exit a trade if the price moves against you. It helps limit your losses. Always use a stop loss, no matter how confident you are in your trade.

Set Daily Loss Limits

Many experienced traders set a daily loss limit, meaning that if they lose a certain amount in a day, they stop trading. This helps prevent emotional decisions and overtrading. Most prop firms will enforce a similar rule as part of their evaluation. If you decide not to use a prop firm and go the self funded route, brokers like Tradovate will also allow you to set your own personal daily loss limit.

Position Sizing

Never risk too much of your capital on one trade. If you are just starting out, develop consistency with the smallest possible size. Typically this will be in the micro products (MES and MNQ), which are 1/10 the size of the normal ES and NQ contracts. This ensures that even if a trade goes against you, you can recover and continue trading.

Conclusion

Futures trading offers significant opportunities for the active trader, but it requires discipline, risk management, and a solid trading plan. Starting with popular futures markets like the E-mini S&P 500 (ES) or Nasdaq 100 (NQ) is a great way to begin your journey. By learning technical analysis and using frameworks like the Two Hour Trader, you can develop the skills necessary to succeed in this competitive environment. And if you’re undercapitalized, prop firms offer a fantastic way to gain access to the capital you need to trade effectively.

Take the time to study, practice, and refine your approach. With the right mindset and resources, futures trading can be a rewarding path to financial independence. If you find that you are struggling to develop consistency, join us in the Trader’s Thinktank where we trade live every day.