Pre-Market · 6 min read
The Basics
The mechanics that sit under every strategy: what you can buy, how orders behave, what the day looks like, and the rules your account lives by.
Before any strategy makes sense, you need to know what you are buying and how an order becomes a position. Mechanics quietly decide what a trade costs you, long before the chart does.
What you are actually buying
A stock is a share of one company. It moves on that company’s earnings, its news, and the market’s mood. Buying it is a direct bet on one business.
An ETF (exchange-traded fund) wraps a basket of holdings into one ticker. An index ETF spreads you across every company in it, so one bad quarter cannot wreck the position.
A futures contract is a standardized agreement to buy or sell something — a stock index, crude oil, gold — at a set price on a future date. Day traders never intend to take delivery; they trade the price and exit long before expiration. Leverage is built in, which is why futures get their own section below.
An option is a contract giving you the right, not the obligation, to buy or sell a stock at a set price by a set date. It adds leverage and a deadline on top of everything else here. Leave options alone until managing a plain stock position is automatic.
Order types
Every order type trades certainty of price against certainty of getting filled. Choose based on which of the two you actually care about on this trade.
| Order type | What it does | When to use it | Main risk |
|---|---|---|---|
| Market | Fills now, at whatever is available | Getting in or out beats the exact price | Can fill far off the last quote in fast or thin markets |
| Limit | Fills only at your price or better | The price beats getting filled | May never fill if price walks away |
| Stop | Becomes a market order once a trigger trades | Automatic exits you will not babysit | Fills like a market order — possibly far past the trigger |
| Stop-limit | Becomes a limit order once a trigger trades | Automatic exits where you refuse a terrible fill | Price can gap past your limit, leaving you still holding |
How long an order lives
A day order expires at the closing bell if unfilled. A GTC (good-til-canceled) order survives across sessions until it fills or you cancel it. GTC is convenient for standing entries and dangerous for forgotten ones: an order placed Monday can fill Thursday on news you never saw. Review your open orders.
Bid, ask, and spread
The bid is the most any buyer will pay right now. The ask is the least any seller will accept. The gap between them is the spread. Buy at the ask and sell at the bid and you have paid that gap twice before price has moved a cent.
A wide spread is a fee nobody bills you for
Spreads never appear as a line item, which is exactly why beginners ignore them. On a thin ticker the spread can cost more than commissions and fees combined. Know what it is before you size the trade, not after the fill disappoints you.
Slippage
Slippage is the gap between the price you expected and the price you got. It comes from the market moving while your order travels, and from a market order taking whatever is available at each level of size.
It is worst in thin names with few resting orders, and in fast conditions — the open, a news release, an earnings reaction. Market orders are the most exposed of any type, because they carry no price protection at all.
The shape of the trading day
Pre-market is thin and gaps on overnight news. The open — the first 30 to 60 minutes — is the most volatile stretch, when overnight orders and news reactions land at once. Midday usually drifts. The close picks back up as funds rebalance into the bell. Futures trade nearly around the clock, but the same rhythm applies: liquidity and volatility still concentrate around the equity session, and the overnight hours are thinner.
Be careful at the open. Spreads widen, reversals happen inside minutes, and the pace makes it easy to chase a move that has already finished. You are allowed to trade it. You are also allowed to wait half an hour, which costs nothing but patience.
Account rules
A cash account trades only settled funds. A margin account lets you borrow against your holdings, amplifying gains and losses equally. Cash accounts also face settlement: sale proceeds are not reusable until the trade settles a day or two later, and repeatedly trading unsettled funds can get the account restricted.
How often you can day-trade a margin account comes down to your broker’s intraday margin requirements: buying power is tied to your actual exposure through the day, not a fixed trade count. Different brokers implement this differently, so know your broker’s policy before it interrupts a trade.
Thresholds and broker policies change. Check current FINRA and broker rules rather than trusting any number on this page.
Futures are their own world
Almost everything in the account-rules section above is equities law. Futures run on a different rulebook, and the differences are exactly why so many day traders end up there.
| Stocks | Futures | |
|---|---|---|
| Trading hours | Regular session about 6.5 hours | Nearly around the clock, Sunday evening to Friday afternoon, with a short daily break |
| Margin | Borrowed money against your holdings | A good-faith deposit per contract — nothing is borrowed |
| Expiration | Shares never expire | Contracts expire — positions roll to the next contract month |
| Price increments | Pennies | A fixed tick size with a fixed dollar value per tick |
Every contract has a tick size — the smallest move it can print — and a tick value, the dollars one tick is worth. The same quarter-point move is worth $1.25 on a micro index contract and $12.50 on its full-size version. Micro contracts exist precisely so smaller accounts can trade the same markets at a tenth of the dollar risk. Know the tick value before you size anything, because it, not the chart, sets what a stop costs.
Futures margin is a performance bond, not a loan: the exchange sets a minimum deposit to hold each contract, brokers often discount it further intraday, and they can raise it without much notice in volatile weeks. Holding past the session close requires the larger overnight margin — a common surprise for new futures traders.
Contracts also expire, typically on a quarterly cycle for index futures. Volume migrates to the next contract in the days before expiration, and staying in the old one past that point means trading a thinning market. If you hold positions across weeks, rolling is part of the job.
Leverage cuts both ways
A small deposit controlling a large contract means an ordinary-looking move can be a large share of a small account. The sizing rules in Session 02 are not optional here — with futures they are the difference between a losing trade and a losing account.
Paper trading
Paper trading teaches you the software: where the buttons are, how to attach a stop, what happens when one triggers. Worth a week. What it cannot teach is how you behave with money at stake — the fear that closes a winner early and the greed that holds a loser only appear when the loss is real.
Core principle
A simulator is a flight trainer for your platform, not for your nerves. Learn the controls there, and expect the real lessons about how you handle risk to arrive with your first real loss.
Put it into practice
Reading builds knowledge; journaling builds skill. Track your trades and see your own patterns.
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