Types of Retail Futures Traders

Retail futures traders are often smaller-scale speculators who participate in the markets to profit from price fluctuations. Unlike large institutional traders or commercial hedgers, retail traders generally make up only a small fraction of total market volume each day. They engage in futures trading as a means of speculation, portfolio diversification, or even as a full-time career. 

These traders often specialize in short-term duration trades on a specific contract or market such as stock indexes, commodities like gold and crude oil, bonds, currencies, and even Bitcoin. 

Retail traders rely heavily on charting prices and technical analysis, using indicators and patterns to help determine entry and exit points. Others take a blended approach, incorporating fundamental analysis focused on economic reports, political events, and other market-moving news. 

Retail traders typically fall into two main categories: day traders and swing traders. Many traders experiment with both styles over time, while some commit to a single approach based on their risk tolerance, trading goals, and personal preferences. 

Let’s explore the differences and similarities between these two groups. 

Day traders

Day traders are highly active market participants who enter and exit multiple trades within the same trading session. They look to capture intraday price movements and avoid holding positions overnight, eliminating the risk of unexpected overnight market events. 

Day traders benefit from reduced margin requirements, which allow them to control larger positions with less capital, but which also increase the potential for substantial losses. 

A day trade can last anywhere from a few seconds or minutes to several hours, but all positions must be closed before the market session ends to avoid the higher standard maintenance margin rates. 

Characteristics of day traders 

Because of the fast nature of day trading, it demands self-discipline, emotional control, and a well-tested trading plan to help avoid impulsive decisions. Additional characteristics include:

• Fast-paced trading: Comfortable with quick decision-making and execution, able to control emotions and stick to the trading plan 
• Technical analysis-driven: Rely on charts, indicators, patterns, and price action for determining both entries and exits 
• Risk management focus: Use stop-loss and trailing orders with appropriate position sizing to help mitigate losses 
• Frequent trading: Make multiple trades per session, leading to increased commission costs and potential slippage

Challenges of day trading

• Higher transaction costs due to multiple trades per day 
• Emotional stress from rapid decision-making 
• Requires significant screen time and constant market monitoring

Despite these challenges, traders who develop a structured trading plan and remain disciplined can potentially succeed in day trading. 

Swing traders 

Swing traders take a more extended timeline approach, holding trades for hours, days, or even weeks to capitalize on longer-term price swings. They use a combination of technical analysis, trend-following strategies, and economic and fundamental macro conditions to identify potential directional bias. 

Swing traders are subject to the standard initial and maintenance margin requirements for holding positions from one session to the next. Higher margins help protect the integrity of trading for everyone, ensuring the orderly settlement of all contracts and the ability for all traders to satisfy their obligations. 

Characteristics of swing traders

Swing traders have a more relaxed, less stressful approach to trading than day traders. Many swing traders will only trade Monday through Friday to avoid the weekend risk, sometimes closing positions on Friday and then taking a new or the same position again on Monday to keep a longer-term trade. Other characteristics include the ability to:

• Hold positions overnight: Unlike day traders, swing traders are comfortable with longer risk exposure and potential drawdowns during the trade. 
• Require less screen time: This type of trading is suitable for those who prefer a more flexible schedule. Traders should always check positions through a mobile app when not at their computer. 
• Use wider stop-losses: Since positions are held longer and larger price swings can be expected, traders will often use technical indicators to create a more dynamic stop-loss strategy. 
• Combine technical and fundamental analysis: With a swing trading approach, traders often need to trade between known news events to avoid the volatility swings that can occur. 

Challenges of swing trading 

• Overnight/weekend market moves: These can lead to large adverse price moves. 
• Requires patience: Unlike day trading, swing trading results can take longer to materialize. 
• Weekend risk: Some traders prefer to exit all positions before Friday’s close to avoid surprises.

Among traders, "The definition of a swing trade is a day trade that has gone badly." While humorous, this highlights an important lesson: Don’t turn a losing trade into a worse situation—the best traders know that losses are just part of the game. 

Which type of trader are you?

What trading style is right for you is a personal decision as no single style is better or worse than another. Your trading style type should fit your personality, risk tolerance, and time commitment. Whether you thrive in the high-energy environment of day trading or enjoy the patience of swing trading, success comes down to discipline, a trading plan, risk management, and continuous learning.