Online Day Trading: Know the Risk You Are Managing

Whether you decide to invest in equity indexes such as the DOW (YM) and Nasdaq (NQ), commodities such as crude oil (CL) or soybeans (ZS) or bonds such as the 10-year treasury note (ZN), futures contracts allow online day traders to take on greater risk by requiring a lower margin amount.

Margin is the amount of money you are required to have in your account to ‘purchase’ a futures contract. Day trading margins are required on positions that are entered and exited in the same trading session.

This in turn, provides the day trader not only with greater responsibility in risk management, but also the potential for increased returns and staying power as an online futures day trader.

Role of the Clearing Firm

It is more than likely you will have to use ‘margin’ or borrowed equity to fund the purchase of your futures contract. The majority of traders use a clearing firm to fund their day trades. For example, NinjaTrader partners with Dorman Trading and Phillip Capital to clear trades for futures trading accounts. Brokerage firms work closely with clearing partners to ensure you do not overextend funds allocated towards trading.

As an example, the total, real value of a S&P E-mini futures contract or total that the trader and in turn, the brokerage/clearinghouse would be ‘taking on’ is $50 times the value of the S&P 500 index (ex. $50 X 2150 = $107,500).

Online day trading margins vary among futures brokers as they are adjusted based on market conditions, time and other variables that fit each brokerage’s risk model. NinjaTrader’s intraday margin requirements for futures contract day trading are extremely aggressive at $500 per contract for the most active markets including the ES, YM and 6E.

How does Margin Act as a Safeguard when Day Trading Online?

Brokerages and clearing firms use margin to protect their firms from the financial impact of drastic market moves. Margins (the amount of money you are required to have in your account to ‘purchase’ a futures contract) are set so that they equal an amount based on historic volatility during similar present day market conditions.

Additionally, you are responsible for the entire value of the contract as opposed to just the margin amount. The real value of the futures contract exponentially (215 times for example) exceeds the amount of margin required. The aforementioned is the risk you and the broker/clearing house has to manage. That said, if the value of your loss approaches the value of your account, the broker will liquidate all of your positions.

Example of Margin Protecting Traders

In the example below, better known as Brexit (the decision in June 2016, voted by the people of the United Kingdom to leave the European Union) ES (S&P 500) E-Mini futures contracts decreased by 100 points in 24 hours which equates to a $1250 move per contract.


Following the initial decline after the announcement, the retracement in the next three sessions returned the market to pre Brexit levels. The historically large fluctuations in the market would cause most day traders to liquidate their positions with a loss as their margin limits would be hit. However, knowing this decision/event was approaching, most futures brokers preemptively decided to increase margin requirements to protect themselves and their customers.

To always be aware of the financial risk and reward, knowing the specifications of the futures contracts you intend to trade is critical.

NinjaTrader offers clients aggressive day trading margins of $500 per contract for the most popular and liquid futures markets including the ES, YM and 6E. Get started with your futures brokerage account today.