Profit Potential for Day Trading Futures

See How Much a Risk Controlled Futures Strategy Can Make

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Learn how much you can make day trading futures from home. Getty Images

Wondered about the profit potential of day trading futures? The scenario outlined below shows what a risk controlled strategy could make. Trading profits vary based on market conditions. During volatile times, when price moves are bigger, there's greater potential. When price moves are smaller there's typically less potential each day. Performance also varies based on the individual, and is affected by the risk/reward of each trade, win rate, and how many trades are taken.

Futures Day Trading Risk Management

Every successful futures day trader manages their risk.  Risk management is a crucial element of profitability.

Keep risk on each trade to one percent or less of the account value. If you have a $30,000 account don't lose more than $300 on a single trade. Losses occur, and even a good day trading strategy may experience strings of losses.

Risk is managed using a stop loss order, discussed in the Scenarios sections below.

Futures Day Trading Strategy

While a strategy has potentially many components and can be analyzed for profitability in various ways, it's often ranked based on its win-rate and reward/risk ratio.

Win-rate is how many trades are won as a percentage of all trades taken. If you win 55 out of 100 trades the win rate is 55 percent. While it isn't required, having a win-rate above 50 percent is ideal for most day traders. Winning 55 to 60 percent of trades is an achievable objective to aim for.

Reward/risk determines how much is risked to attain a profit. If a trader loses five ticks on a losing trade, but makes eight ticks on their winning trades,even if they only win 50 percent of their trades they'll be profitable. Therefore, making more on winners is something many futures day traders strive for.

A higher win-rate means more flexibility with your reward/risk, and a high reward/risk means your win-rate can be lower and you can still be profitable.

Profit Potential Scenario For Day Trading

Assume a trader has $7,000 trading account and a 55 percent win-rate. They risk one percent of their capital, or $70 per trade. This is accomplished by using a stop loss. For this scenario, a stop loss order is placed five ticks away from the entry price, and a target is placed eight ticks away.

Trading one E-mini S&P 500 futures (ES), the risk on the trade is five ticks x $12.5 = $62.5, which is less than our $70 max risk, and leaves some room for commission costs. A winning trade on one contract equals $100, or 8 ticks x $12.50.

The potential reward on each trade is 1.6 times great than the risk (8/5), as we want winners to be bigger than losers. 

Assume that volatility permits a trader to make five round turn trades per day using the above parameters. A round turn means entering and exiting a trade. If there are 20 trading days in a month, the trader is making 100 trades, on average, each month.

Now, let's see how much a futures day trader can make in a month, taking into account commission costs.

  • 55 trades were profitable: 55 x $100 = $5,500
  • 45 trades were losers: 45 x ($62.5) = ($2,812.5)

Gross profit is $5,500 - $2,812.50 = $2,687.5 

Assume commissions and fees of $4.12 per round turn trade.

Net profit is $2,687.50 - $412 = $2,275.50 

Assuming a net profit of $2,275.50, the return on the account for the month is 32.5%, or $2,275.50 divided by $7,000). See the Refinements section below for factors that could affect this return.

Risking two percent per trade, which means the trader can trade two contracts using the same $7,000 account, the return doubles to 65 percent, assuming the same trading statistics. 

While statistics make achieving a high return look easy, it isn't. Replicating these statistics in a live trading account is challenging. Few traders reach a point of making double-digit percentage returns each month.

That said, it is attainable, but expect to put in at least one year or more of hard work and practice before seeing consistently profitable results.

Refinements

It isn't always possible to find five good day trades a day, especially when the market is moving slowly for extended periods of time. It's also possible that during low volatility times attaining the eight tick target isn't possible, which means some trades will be exited for a smaller gain. Also, a trader exercising discretion over their trades may not always lose the full five ticks. Slight changes in profits and losses on each trade greatly affects overall profitability over many trades. 

Slippage is an inevitable part of trading. Slippage is when an order fills at a different price than expected. In liquid markets, such as the E-mini S&P 500, slippage isn't usually a concern. When it occurs though, slippage affects returns, usually by increasing the amount of a loss or reducing the amount of a profit.

Adjust the profit scenario accordingly based on your personal stop loss, target, capital, slippage, win rate, position sizes, and commissions.