Complete Guide on Futures Contracts (Orderflow Full Course Beginner to Advanced EP.1)

These are trading charts how you've always seen them. These instead are trading charts how you've always dreamed you could see them. It's basically like having X ray vision and seeing the anatomy of market movements. And these are order flow charts. In this order flow video course series I'm making on this channel, I will take you step by step from knowing literally zero about order flow to being able to read it and interpret it correctly and after back testing it properly, boost your edge and your profits. And I will also give you a simple but effective trading strategy based on an order flow manipulation pattern that you can start backtesting right away and some other logics that you can apply or implement in your price action strategy to optimize the daily bias, the zone refinement process and the entry trigger. Reading order flow can give you an almost unfair advantage on all price action traders, showing you information that 90% of retailers are not even aware of. This stuff I'm about to show you is usually not used, completely neglected actually by retail traders. But if you take a look at how day traders or scalpers are mostly trading in the professional environment, in the institutional side the market, they will most likely use these charts instead. Using price action is like trying to hit the target with a normal bow and arrow. Order flow instead is like having a ballistic bow. In both of these cases you have to be the one who shoots properly. And the ballistic one can be kind of more expensive and maybe takes a little bit more time to learn the basics. But once you've mastered the ballistic option, you have a higher chance to hit the target, be more precise and more accurate. Or it's the same as using a normal sniper rifle and a sniper rifle that also has a night vision heat scanner that shows you enemies in the dark. In both of these cases you have to be a nice sniper. But there are some things that you will only be able to see with night vision. And let's say you're using price action concepts like ICT or smart money concepts. Using real order flow is literally like putting those concepts on steroids. You've probably heard of order blocks or fair value or liquidity grab or stop hunts. These are all actually order flow patterns. And while yes, with price action you can figure them out with a fairly good accuracy, with real order flow you can have 100% objectivity on them. You don't have to guess that this is a stop run. You can literally see stop orders being triggered and sweeping the book. And you can see if there's a lot of small stop losses or it's one big stop order from a hedge fund or a bank. You don't have to guess that the fair value gap is from one wick to the next one. You can be actually way more accurate and draw it. Where there's an actual gap in fair value, you don't have to guess. Hey, and probably in this candle there is an order block, which is a block of orders. Because with order flow you can actually see every single one of those blocks of orders. In other words, you can make these concepts way more objective and very often have a more reliable confirmation for your entries. So buckle up, take paper and pencil and subscribe to the channel to be notified as soon as the next episode is coming out. Because this is a series of videos anyway, I will link the whole playlist for this course down below. Now, this course will work something like this. In this first introduction lesson, we will go deep into what order flow is, what are futures contracts, and the advantages of using these contracts. In the next videos we will take a look at how real market mechanics work in depth, how the single order orders are matched by the CME algorithms, and how the auction of these order works. Then we will see how footprint or order flow candles work, how heat maps work, how to identify and use actual liquidity zones. Then we will learn how to interpret different order flow patterns and different order flow types of action. And then we will learn how to give all of this a context and how to implement it in a price action strategy, or in a purely volume based strategy as well. And last but not least, we will learn about the best platforms, the best brokers and the best prop firms. So now let's start with the basics. So when we're talking about order flow, we're talking about a flow of orders and we're talking about buy and sell orders, AKA the supply and the demand. So seeing order flow means seeing the supply and the demand interacting with each other. These are also known as volumes. So when we're talking about volume, usually we refer to the total transaction between supply and demand. Usually with order flow we can be more specific about who is more aggressive. But what you need to understand is that in order to see order flow, you need access to the exchange. So if you want to see all the volume, all the transactions traded in the Nvidia stock, in order to see the order flow of the market participant in Nvidia, you need to go to the nasdaq, which is the exchange that Nvidia is traded in, and access it through a data feed. But with stuff like Euro Dollar or GBP jpy, these are forex pairs, these are currencies and they are not traded in the same place. When we're talking about forex, currencies are mostly traded in the interbank spot market and unfortunately we don't have any data on this volume. For order flow you need a centralized exchange, whether it is for stocks or for futures contracts. And it's also important to clarify the difference between underlying asset and contract or derivative. So the underlying assets usually are subdivided in asset classes. So you have stocks or equities, you have currencies, you have bonds, you have commodities, you got cryptos, these are all asset classes. In stocks you got individual stocks or index funds. With currencies you have majors and minors. With bonds you have treasury bonds and corporate bonds. In commodities you have precious metals, energy, materials and so on and so forth. These are asset classes. So unless you want to day trade all of these things physically, which is not necessarily the best way, brokers and banks created derivatives. So you got CFDs, you got futures, you got options, and so on and so forth. So let's say we're taking a currency pair like EURUSD. You can choose to use the CFD which usually is named exactly euro dollar or you can choose the futures which is 6e, it's a slightly different name. With GBP USD you're gonna have 6b. If you click here on trading view and you press 6 you will see that all the currency futures has a six at the beginning and then the first letter. Euro, British Pound, Japanese Yen, Australian Dollar, Canadian Dollar, Swiss Franc, New Zealand dollar and that's pretty much it. So you only have futures of some currencies, but just paired with the dollar, you don't have a lot of currency pairs. And even though as you can see these futures are traded in the cme which is the Chicago Mercantile Exchange, their volum futures volume traded in currencies is really low. In fact, in the latest report of the bank of International Settlements, if you go to the PDF at page 6, you will see foreign exchange market turnover by instrument. And you will see the spot market is around 30%. The outright forwards are around 15%. Most of the volume is in forex swaps. Currency swaps are just 2% options and other products which includes CFDs constitutes a very small part of it. So CFD forex traders are a very small percentage of that 5%. And also usually CFD traders are not even trading in this interbank market. They're actually trading against their brokers or against their prop Firms. So stating that in the euro dollar there has been a liquidity sweep of retail traders. Stop loss is complete bullshit. And this is not an opinion, this is based on data, this is facts. All right, let's say gold. The classic cfds is XAU USD. The future is going to be GC for an index fund like an S&P 500 which always remember is an index. So the underlying asset can't be traded other than with derivatives like with ETFs or futures or options or CFDs. So usually the CFD will be something like US 500 and the futures will be the micro contract of SP which is ES and so on and so forth. So when you say that you are a forex trader but you actually trade gold, probably you mean that you are a CFD trader. I mean if you're using MetaTrader 4 and CFD Prop firms or a forex broker, you are trading CFDs. You're a CFD trader, not a currency trader. If you are a currency trader you could also use futures, not necessarily CFDs. So let's start to put things in their place. All right, Forex is the asset class, CFDS is the derivative. Now there are some clear advantages in using futures instead of CFDs because futures are traded in one place, hence you have access to real volume. They are regulated, they're more transparent. There is no spread markup from the broker. The cons are that margin requirements are actually a little bit higher. You need to pay for the data feed. So to access the order flow of the exchange you have to pay a little monthly fee. And also you need a platform that can take take this data and show it to you in an understandable way. And here you have footprints and heat maps. I will show you exactly which platform I use later on this video. CFDs instead are traded in a decentralized network. So you don't have a single exchange where you can take the volume and the data. Hence they're not that transparent, they're non regulated, they're banned in a lot of countries. Your broker is adding spread in most cases. You also pay a swap for overnight positions. So maybe for a swing trader they're not always optimal. And yes, you can choose Islamic account in some cases, in some brokers, but you probably end up paying more commissions. So futures, especially if you're a long term trader, are much more convenient then. It's also true that swap can be positive. But in most cases if you're following a trend, the swap is not going to be on your favor. Pros Are access is easier, Prop firm has more competitive and more doable. I would say challenge conditions but. But these things are not necessarily good. Yes, access is easier to the retail traders, but it also means that newbies and uninformed traders can open an account so easily with €50 with 1 to 2000 leverage because I forgot to write leverage can way higher. So if you are a ludomaniac like most of you are, you have easier access to self destruction. So it's not necessarily good. Same thing with leverage which sometimes is crazy high. And the fact that the platforms are basically free. Bro, if something is free, it's because you are the product. Because you're paying with your spread, with your commission and with your losses or in case of social medias and porn, with your attention. And yes, prop firms are more competitive, but as we saw. Exactly. Because rules can be too easy. The financial models of prop firm is very risky. So when you open a trade in futures, you are sending the order through the broker. The broker also through the data feed is sending the order to the exchange. And the exchange through so called matching algorithms finds you a counterparty in the market. So the exchange finds you a counterparty, confirms the order to the broker, which gives you back the contract with CFDs. Instead you're sending your order to your broker. And most likely the broker will put your order in the so called B book, which means actually the broker is your counterparty. And even if the broker says we are an STP broker, we are an ECN broker, 99.9% of the time they are not. They may be offering you ECN prices, your order might go also straight through a process, your order might actually be processed straight through, but not straight through their liquidity providers, straight to the B book. No dealing desk brokers, which are very few, the Only one I'm 100% sure is a no dealing desk broker is Elmax. And trust me, you're not getting into these brokers with a $500 deposit. Most of ECN broker only provides you ECN prices. But an ECN execution, the only way they will provide an ECN execution is if they put you in the A book. Because then in the ECN which is the electronic communication network, they will match your order with the liquidity provider, which is usually a bank. And by the way, the same goes for prop firms. But I think that with prop firms, the percentage of people that are being actually A booked are even lower than normal brokers. So in the futures market, the conflict of interest you have with the brokers is only based on commissions, which is okay. So their interest is that you trade as frequently as with highest size as possible. In cfd, the conflict of interests is commissions, spreads, eventually swaps, if there's a markup also there and counterparty gain. Because being your counterparty, the broker is earning money when you lose. Same with Prop firms. So CFDs are the big casino. They are dipped in conflict of interest. But at the end of the day, who gives a shit if you're profitable? You're profitable both in futures and in CFDs. So in futures you have clear advantages like yes, you don't pay a spread to the broker, there's no swap, you can have access to the order flow. And it's a bit more romantic if you want, because you can access the market. You could be actually trading against a bank or any other retail trader, against Navinder Sarao in his bedroom, or against Umar Ashraf or any other retail trader in the world. So it can be more romantic in a way, but it's not really a big deal at the end of the day. You just need to be profitable. But what are futures? As we discussed, futures are derivative contracts. They were originally born in the field of commodities. In fact, the CFTC still holds the name of Commodities Futures Trading Commission. And they weren't necessarily created for a speculative purpose like CFDs. Because CFDs means contract for difference. So it's been creating for gaining a profit speculating on the difference between entry price and exit price. It's created for that futures contract instead were originally created for hedging purposes because let's say you're a company, you're Ikea and you use a lot of wood. And because of a problem in the supply chain of wood, you expect the price of wood to get higher and higher, higher in the next month or in the next year. So instead of buying now a huge supply of wood that you wouldn't know where to put, you can buy a futures contract today, which basically entitles you at the end of the contract, which can be 3, 6 months, 1 year to buy that big pile of wood at this price. So they were created for hedging purposes. Some of you may have heard about the COT report. That's the reason why in the COT report, which is the commitment of trade offs report, which is a CFTC documents that reports all the position of big players in each of the commodities market, in each of the futures market, there still is the commercial side of participants because they're using futures for hedging purposes, for commercial purposes, not for Speculation. So as I said, you buy the futures now because you think that in the future is going to go up. So you want to cover yourself, you want to hedge yourself from future price movements. So you buy a future contract and at the deadline when the contract is expired, you can take the underlying commodity. But what I want to be clear here is that there is is an expiry. So every futures contract, even the one for S&P 500 for the euro futures, for the gold futures, they have an expiry date, usually of three months. In fact, if I write ES and I open the menu, you'll find that I have March 2025 contract, June 2025, September 25, December 25, and so on and so forth for the next five years. And each and every one of those month has a different ticker or name if you will. June is this M over here. So ES, M which stands for June 2024. U is for September, Z is for December, H is for March, and so on and so forth. Let's open the euro futures also here you have J, which is April, K which is May, M which is June, N which is July, and so on and so forth. So every one of these contracts has a different expiry date. So when you buy a futures and then you want to keep it also for the next contract, for the next expiry, you roll the contract, what is also known as rollover, which basically mean you get rid of this contract and to the next one, because this one is about to expire. So every three months, the futures of the S&P 500 expires, just like with options, every single month, on Friday, options stop trading and they expire on Saturday. This is for monthly options. The same things happen with futures. So when there is a quarterly expiration of options, which usually happens at the end of every three months, this thing is called also OPEX option expiration. If it happens at the same time that futures also expires, you can see some weird market movement and volatility. Now if I zoom in, in contract you will notice price is moving only 0.25 points at the time. 50, 75, 81, 81.25, 0.5, 0.750 and so on and so forth. So you have to imagine the price ladder of futures is not divided in pips but in ticks. So the minimum price difference is one tick, which for the ES is 0.25 points. Okay, so to go from 80 to 81.001 point equals four tick. And how do you Calculate risk. In futures, every tick usually has a value which is called tick value for S&P 500 is 12.$5 per tick. For the micro ES contract which is the MES, the tick value is 1.$25 per tick. So if you're starting with the small capital, usually you're going to want to opt for the micro S&P 500 or micro contracts in general. There are a little bit more expensive commission wise, but they allow you to enter with a smaller size and control risk better. Another important thing about futures contracts contract is that you can't open multiple positions in the same contract. Let's say price is here, you have no open trade, your position is flat or zero. If you buy one contract your position is plus one. So this is exactly the level you're in. Let's say now price is rising up and you want to increment your position. So what you're going to do, you're going to buy one more contract here. So plus one. But in futures you're not going to have two different one contract position positions. Both of these will be mediated will be averaged into one single position of plus two. So these two will go and you'll be left with a single operation exactly in the middle of plus two. So your long two contracts at the average of the two prices. This is how it works. Then let's say you want to hedge yourself against a possible downturn of the price. So you choose to sell over here to take this sell move movement. So what you're going to do, let's say you're going to sell one contract. So your position will be minus one right here. But as you press the sell button you're not going to have a new sell position here. This minus one will be taken away from the plus two and you're just going to be long one contract. So there is no hedging in futures in the same contract. The only way to do this and make it actually work like you imagine it in your mind is if say you open long on the ES and then you short the micro contract contract. So in the same contract you can't hedge and you cannot have multiple different positions in different contracts. Yes you can. Also there is a slight difference how stop losses work, how take profits works. Usually if you buy one lot of eurusd, you just place your stop loss right below here as your stop loss and maybe your take profit above here. But as I said, we're just working on numbers of contracts. So since you're long one, this will Equal minus one and this also would equal equal minus one. So if you think about it, if you're buy here and selling here and this is the price, if you put a sell because this is minus 1 above the price, it's called a sell limit because it's a sell order that will be triggered once the price reaches this level and hopefully then comes back. The one here instead will be a breakout order, so will be a sell stop. So in futures there's actually no stop loss or take profit. These are CFD names. Names. In futures you will just put a sell limit and a sell stop as a stop loss. Vice versa of course if this is your sell entry and this is your target and this is your stop loss and minus one contracts they will be simply in a plus one order. And let's say price is here, this will be a buy limit and this will be a breakout order. So a buy stop. As an example, this is the order flow platform I'm using to trade futures. And as you can see you can buy market sell market bit or ask. We will see in the next part. So say I'm opening a market contract right now. So let's make an example on a simulated account to make you understand exactly what I mean. Now these candles are a little bit different than the one you're used to. I know, we will discuss them in the next video. But let's say we want to sell. We're going to set the quantity. For example five contract. We're going to sell the contract. As you can see, I have five contracts open right here. In order to place myself a stop loss I will have to put a buy stop let's say above this high. Let's see if it's going to be taken. Okay, seems like price is going lower. So let's put ourselves a take profit. How are we going to do it? With a buy limit of five contracts. Contracts right here. Perfect. Our take profit has been taken. But as you see plus 5 equals 0. My position is flat. But this order is still a stop order that I placed myself to cover myself. But now I have to remember to remove it which is kind of annoying. That's why we use OCO strategies which means one cancels other. Where I can say okay, five ticks below or above you put my stop. So we're adding the first bracket and then another target say 10 ticks below. So we're adding this bracket. We give a name test, we save it and now it's here. So now if I sell market I will put the stop above here, the target below here. We'll let the price go to whichever of those perfect. As you see, it hit the stop loss and the take profit didn't stay there. It was canceled because one cancels other. So as you can see, it can be a little bit more complicated to get used to these kind of things. At first, as with everything, it just takes a little bit of time to learn. Then you set up yourself an OCO strategy and it's done. So this was an overview of future contracts, how they work, what they are. In the next video, we're going to get deep into what order flow actually is, how is it structured in extreme detail. And we will fully understand market mechanics, how the market actually works. Not some weird interbank algorithm. No, how market actually work. Okay. So I hope you really understood the power of order flow and how futures contract work. If you have any question, feel free to comment. Leave a like if you enjoyed this video and subscribe to the channel. So I'll see you in the next video. You're welcome, by the way. Ciao.