The Monthly Profit Potential for Day-Trading Futures

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Many factors go into determining how much money you could potentially make in a month by day-trading futures. Let's create a scenario using a risk-controlled trading strategy to get a ballpark idea of its profit potential.

Remember the following caveats: Trading profits vary based on market conditions. During volatile times, when price moves are bigger, there's greater potential for profiting. When price moves are smaller, there's typically less potential each day. Performance also varies based on the individual and is affected by, among other considerations, the risk-reward ratio of each trade, a trader's win rate, slippage, and the number of trades taken.

Risk Management

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

Traders should keep the risk on each trade to 1% or less of the account value. If a trader has a $30,000 account, they shouldn't allow themselves to lose more than $300 on a single trade. Losses occur, and even a good day-trading strategy may experience strings of losses.

Risk is generally managed using stop-loss orders, which close out trades at a price the trader sets.

Measuring Success

While a strategy can be analyzed for successfulness in various ways, it's often determined based on its win rate and risk-reward ratio.

The win rate, which is also known as the win-loss ratio, is the percentage of all trades that are profitable. If you make money on, or win, 55 of 100 trades, the win rate is 55%. While it isn't required to be profitable, having a win rate above 50% is ideal for most day traders. And winning 55% to 60% of trades is an achievable objective to aim for.

The risk-reward ratio quantifies how much money is risked to attain a certain profit. Let's say a trader has $7,000 in a trading account and is planning to purchase one E-mini S&P 500 future and hold on to it until the price has gone up eight ticks. For E-minis, a tick (the minimum price movement) is $12.50 or 0.25 index point.

The trader puts in a stop-loss order for five ticks below the entry price, which makes the risk for this trade five ticks x $12.50, or $62.50. That amount is below the maximum risk per trade of $70 ($7,000 x .01). If the trade scenario plays out the way the trader wanted, they will have made eight ticks x $12.50, or $100 (before any commission cost). That makes the risk-reward ratio for this trade $62.50 / $100, or 0.625.

If a trader loses five ticks on a losing trade but makes eight ticks on a winning trade, they will be ahead of the game even if they win only 50% of their trades. That's why many futures day traders strive to make more profit on each winner.

A higher win rate means more flexibility with your risk-reward ratio, and a higher risk-reward ratio means your win rate can be lower while still making a profit.

A Monthly Trading Scenario

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 that 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 ($62.50) = ($2,812.50)

Gross profit is $5,500 – $2,812.50 = $2,687.50. 

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 and then multiplied by 100.

Replicating this scenario in a live trading account is challenging. Few traders are able to make 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 trades a day, especially when the market is moving slowly for extended periods of time. And during low-volatility periods, attaining the eight-tick target isn't always possible, which means some trades will be exited for a smaller gain. Conversely, a trader who exits a trade at their own initiative, rather than using a stop loss, may not always lose the full five ticks.

Slight changes in profits and losses on each trade greatly affect overall profitability over many trades.

Slippage, when a trade is completed at a different price than expected, should also be taken into consideration. In liquid markets, such as the E-mini S&P 500, slippage isn't usually a concern. When it occurs, though, slippage usually increases the amount of a loss or reduces the amount of a profit. Adjust this profit scenario accordingly based on your personal capital, stop loss, price target, win rate, risk-reward ratio, position size, commission, and slippage assumptions.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.