Over the weekend is a good time to prepare yourself for the coming trading week. It really doesn’t matter what your asset of choice is, but the weekend gives you a good couple days to regroup and refresh your methods and start coming up with a plan or strategy to use into the next week.
Everyone knows that the U.S. stock markets are closed over the weekends, but futures contracts do sell, especially for the major indices like the Dow Jones Industrial Average and the S&P 500. However, do these futures really indicate substantial price changes for the index in real time? If so, how closely are they related, and how do you apply that information to your trading strategy? If this trading is going on over the weekend, it is a good idea to watch it and then when you resume your trading on Monday, use any information that you gain to your advantage.
First, remember that futures contracts are first and foremost a gauge. They are not one hundred percent reliable and cannot be treated as such. But, because so many people use them as a gauge, they can be pretty accurate much of the time. In this sense, futures contracts are a good way to estimate trader sentiment. Because futures contracts for an index are marked to market, they will show real time changes within the contract holder’s account. Unlike commodity futures, this gives investors here more incentive to be accurate. And it’s for this reason that index futures have a higher degree of accuracy, or correlation, if you want to be technical, when it comes to how the actual index’s price is supposed to move.
Next, realize that the stakes are higher for futures investors. Each contract tends to represent a much larger sum than the actual price of the index. If the Dow is trading at 17,000, a futures contract might be trading at 10 times that price. So, if the Dow drops 100 points, it represent a $1,000 loss for the futures holder that went long on price. This gives the investors that purchase these more incentive to be thorough with their research. For the other major indices, the stakes are even higher. The S&P 500 trades at a 250 times multiplier, for example. If the S&P drops 10 points, that’s a $2,500 loss.
This is why trading short term binary option off of futures movement can be so beneficial to you. For one, the S&P 500 is one of the easiest to predict indices out there. It is reliable, and there are many platforms out there that are scouting out what affects it and how. In this sense, there is more good research and analysis out there for the S&P than the vast majority of other assets. When futures drop 100 points for this index, then, you can know that the actual index is most likely to follow suit, especially if other sources of information indicate the same thing. Taking a string of short term binary options at the beginning of the trading day to mirror this can help you to make a lot of money, without the same risk that index ETFs carry, and you certainly won’t need to front $100,000 like futures contracts usually require. Instead, you can risk $10 to $25 if you want, or much more. It’s up to you and your broker’s requirements. Either way, when information is saying that a movement is most likely, using futures movements from over the weekend, plus another reliable source to confirm your trades is a good way to use your time effectively as you get ready for Monday morning and beyond.