Trading Tip 20: Top Five Reasons Why You Should Consider Index Futures Trading

You can trade stocks, forex and futures.

Depending on your account size "stocks" might not be an option for you, since you need at least $25,000 in your account to daytrade stocks.

Forex trading is very popular, but if you are new to trading I must warn you:

The Forex markets are extremely volatile, and you can easily make (or lose) thousands of dollars in a day. Many Forex brokers offer "free quotes and charts" and "no commissions", but keep in mind that nothing is for free: You are paying a spread, i.e. you can NOT buy a currency and immediately sell it for the same amount. It's like at the exchange booths that you know from your holidays: You exchange $100 into 80 Euro, but when you change the 80 Euro back into dollars, you only receive $96.

Same when trading Forex: You are paying at least 2 "pips". This amounts approx. $20, depending on the currency pair you're trading. Another disadvantage of Forex trading is that you are NOT trading at an exchange: There is no "Foreign Exchange". You are trading against your broker: If you are selling, then your broker is buying from you and vice versa. And that's why your broker is giving you the quotes for free: He can basically give you *any* quote since there are no regulations. Scary, isn't it?

So let's talk about futures trading, and why you should definitely consider index futures trading:

1. Electronic Trading
Index Futures are traded electronically and you can enter the orders through your computer, without ever calling a broker. You will receive fills within less than two seconds. That's extremely important since you should ONLY place a stop loss and profit target order AFTER you received your fill.

2. Low Commissions
When trading index futures you pay very low commissions, sometimes as cheap as $5 to $8 per round turn. Compare this to $18 to $25 commissions when trading "open outcry" markets, or a $20 to $30 spread when trading Forex. Low commissions are important to keep your costs down and increase your bottom line.

3. High Leverage
When trading index futures you only have to deposit a small amount as a margin requirement with your brokers. The margin requirement is determined by the exchange, and if you are daytrading your broker can reduce the margin requirement even further. Let's say you want to trade the e-mini S&P index future. The current value of the contract is $55,000, but you only need to deposit $3,900 margin to trade one contract. When daytrading your broker can reduce the margin requirement to $500, giving you more than 100:1 leverage.

4. Liquid Markets
When trading index futures you are trading some of the most liquid and popular markets in the world, hence you will experience little or no slippage. As an example: There are 1,000,000 contracts traded per day in the e-mini S&P index future.

5. Free Quotes and Charts
When trading index futures, your broker might give you access to quotes and charts for free. Most brokerage firms offer trading platforms that include charts and quotes, and if you open an account you'll get access for free.

Don't fall for all the hype and do your research. If you're new to trading I strongly recommend trading index futures. Index futures trading offers many advantages over stock and forex trading, and it's easier than you might think.

About the Author:
Markus Heitkoetter is an experienced trader and developer of many successful trading systems.
For more free information how to make money with index futures visit his website: http://www.rockwelltrading.com

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