Futures trading is becoming a popular topic lately and it’s a viable way of making a full-time income. Nasdaq futures trading is no different, but how does one get into trading futures? The simple answer? A futures trading platform, a good broker, a good education and an amazing mindset. Use that formula and you too can trade the futures market. However, TRADEPRO Academy doesn’t want to leave you with a cliff hanger, we’ll explain each step intricately in the following article. Preparing you to trade Nasdaq futures.
The first thing to know, Nasdaq futures are based on the Nasdaq equity market and they are a derivative market. The futures contract trades on the CME and is heavily regulated, meaning no manipulation! The Nasdaq futures market is correlated to other US equity futures markets, the S&P 500 futures, Dow futures and Russell 2000 futures. However, the Nasdaq futures market has a personality of its own. Despite its equity correlation.
Nasdaq Futures-Basics to know
The futures market is a derivative market, in which futures are based on underlying instruments. In this case, Nasdaq futures are based on the Nasdaq index and are affected by the stocks on the Nasdaq! The futures market usually trades at a discount of the cash index due to dividends paid by stocks on the cash index. The futures index does not provide that. Nasdaq futures contracts have specs that traders should be aware of, such as tick size and so on. Below is a screen capture from the CME website.
The Nasdaq futures contracts are worth $20 a point, so 1 tick which is a quarter point is worth $5 per contract. The rest of the specs are listed below. This is for the E-mini Nasdaq contract. The recently added E-micro is 1/10th of the size, which will be discussed further on.
Since Nasdaq futures are based on the index itself, tech stocks have a large impact on trading the futures markets. This means that just like tech Nasdaq futures have a more volatile personality. The Nasdaq futures are very liquid but trade on average fewer contracts per day than their S&P 500 futures counterparts. The average volume on the Nasdaq Futures market often denoted as NQ or ENQ is between 400 and 500 thousand a day. As opposed to the 1M contracts averagely traded on the S&P 500 futures.
The depth of the market on the NQ market is also thinner than the ES, which adds to the volatility of the market’s personality. Check out the following comparison. Nasdaq averages 15-20 on each level while the S&P 500 futures about 350-400. The Nasdaq depth of the market is on the left, while the S&P 500 is on the right.
Nasdaq Futures-What to watch NQ futures?
The Nasdaq futures market has a volatile personality, partially attributed to the lower liquidity and the tech market derivation. There are many “volatile” stocks that are on the Nasdaq index. Such as the FAANG to mention a few. For a little more of an insight of volatile stocks, check out the following article, click here! The FAANG encompasses the main tech stocks that tend to move the Nasdaq index. Inclusive of Facebook, Amazon, Apple, Netflix, and Google. Not mentioned is Microsoft which should also be considered.
When trading NQ futures, traders should be cognizant of individual stock movements, especially those mentioned. That includes earnings reports and other large events that may affect those stocks.
There are so many other things to consider when trading NQ futures, it does not begin and end at tech stocks. Keep an eye on the NEWS. That’s right, American politics and large news events. As of late, Trump has been a market move, whether its policy updates or just blatant trade talks. The Federal Reserve is also a market mover in its forecast of monetary policy and economic outlook. Global News is also a strong market mover as many economies are interconnected globally. If China slips overnight, you bet that it’ll have some effect on Nasdaq futures.
A final piece of information to note when trading NQ futures is another equity market and risk off-market correlation. Other equity markets such as S&P 500 futures, Russell 2000 futures, and Dow futures all have a positive correlation with NQ futures. Meaning that they tend to move together, so if one of the multiple are diverging there could be something to consider that, will Nasdaq catch up to the others or will Nasdaq pull other markets in its direction.
Take the chart below, for example, the correlation line matrix developed on Sierra Chart. The purple line is Nasdaq, the green is the S&P 500, the yellow is the Dow and orange is Russell 2000. Markets sometimes take turns leading, however, Nasdaq or Dow tend to lead a majority of the time. In the current capture, Nasdaq looks like its slipping a little, but all other markets are moving higher. This could mean that Nasdaq is a good buying opportunity.
Alternatively, the correlations do not end just there. There is risk off correlations to consider as well when trading NQ futures. These correlations move in the opposite direction. When following the Nasdaq market, consider “is risk off moving in the opposite direction as the NQ”. If not, why? Should it? Again, look at the chart below as an example. The combination of equity correlation and risk off (the chart on the right). The risk-off matrix encompasses the following: brown is bonds, red is yen, yellow is gold and grey is silver. When trading NQ its important to ask yourself, most importantly what are bonds doing? Are they going up as equities are dropping? They should hold an inverse relationship, but may not always be the case. The other risk-off assets are of less importance, but good to consider.
Nasdaq Futures-How to begin trading NQ?
The elementary rundown of how one begins to trade the Nasdaq futures market is a two-step process. Find a good futures broker to act as a data feed to the CME market, and find a good platform that can be connected to that data provider. Another alternative is finding a two in one. Platform and data. The final piece to the puzzle is good futures trading education.
A good broker is very important when trading Nasdaq futures. What qualifies a good broker? Low margin requirements and low commissions. AMP futures is a great futures broker that provides both! To trade 1 E-mini Nasdaq futures contract, you are required to have $500 of margin throughout the day. That means you can day trade 1 NQ contract with a $500 account (not advised). To hold the contract overnight (5:00 PM to 6:00 PM EST) you are required to have $7,600 of margin in your account. Alternatively, the newly introduced E-micro Nasdaq futures contract requires substantially less margin, $50 to day trade and $760 to hold overnight. For more information click here.
Commission rates at AMP are very reasonable as well, on average per round turn on an equity contract it will cost you $4.00 or so to trade 1 contract. This is also dependent on your data provider you chose through AMP futures brokerage. For E-micro Nasdaq futures, its even cheaper, around $0.75 per round turn.
Next is the platform, there are several futures trading platforms out there. Some more user-friendly than others and some cheaper than others. TRADEPRO Academy uses Sierra Charts, which is approximately $35 monthly and has everything you need to trade futures. From level 2 trading to all types of charting and order flow tools. The platform is compatible with multiple data providers so there should not but much of an issue.
Finally, a good foundational education in futures markets. A good education on the bare bones of all things markets can help differentiate between a successful trader and a not so successful trader. With trading education, one should also consider psychological education. Trading is a very mental career and one has to have a sound mindset to succeed. Luckily you don’t have to venture very far. TRADEPRO Academy has the solution for you. Everything from market structure, price action, order flow trading to even psychology training. Check out the ELITE PACKAGE.
There are two main entities to consider when trading Nasdaq futures. The classic E-mini contract which has been around for over a decade and the newly introduced E-micro Nasdaq contract. Introduced on May 6th, 2019.
Trading the E-mini NQ
The E-mini Nasdaq is the classic Nasdaq contract traded on the CME. The specs are listed above and the contract has a lot of opportunities throughout the day full of volatility.
Trading E-micro MNQ
The E-micro has recently been introduced to the world of trading. The E-micro was first traded on May 6th, 2019 and during the first day of trading, 90.3K contracts were traded from the Globex open to the cash close.
The E-micro is 1/10th of the E-mini. Meaning the E-micro tick size is worth $0.50 whereas the E-mini is worth $5.00 per contract. One full E-mini contract is worth 10 full E-micro contracts.
The E-micro moves and trades as the E-mini would with similar market depth inventory but gives a chance to the retail crowd to come into the market and learn how to trade by dipping their toes into the risk pool but also not taking huge losses. E-micros may make learning to trade less expensive.
Nasdaq Futures: How to trade futures the market profitably?
The question many may be asking? How how to trade futures market this profitably? One way is to go through our futures course, put in the time and effort, treat it as a career and attend the live sessions!
Alternatively, I can give you a taste of Nasdaq futures trading with a Nasdaq futures live! We’ve got some great YouTube Videos on it as well.
Final thoughts
Trading Nasdaq futures can be very rewarding, but only if you are prepared and have the right tools to do so.
The article above outlines the main artillery you will need to possess to tackle the Nasdaq market. The first being educated in the futures contracts themselves, knowing the markets personality and what will affect it.
Next, equip yourself with a good broker and a good platform to be able to tackle the market. Such as AMP futures and Sierra Charts.
Finally educate yourself on the market, how to actually trade it properly, and have the right mindset to tackle it!
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The information contained in this post is solely for educational purposes and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable to your own financial situation. TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.
