Top day trading tools

Intraday trading involves buying and selling (or short selling and then buying back) a tool designed to make quick profits. The holding time may vary from a few seconds to a few hours, but it will not exceed the span of a trading day. For example, a speculative trader may spot a technical uptrend in Microsoft stock (MSFT) at 10:15 am, establish a long position and close it within 45 minutes to make a quick profit.

Carrying a position to another day is not eligible for day trading. By its nature, intraday trading requires traders to act quickly and in a timely manner, usually with higher value to make up for the meager profit margin. In general, the small profits of a large number of transactions provide acceptable profits for day traders. Most day trading is conducted on margin, allowing traders with limited capital to hold large positions equivalent to several times their trading capital. The large capacity also ensures low transaction costs.

There are a variety of tradable assets in the global market, including stocks, bonds, foreign exchange, commodities and various derivatives (such as futures, options or swaps). In terms of short-term transactions, some assets tend to outperform others.

How to choose stocks for day trading

Day trading standard

Which tools are best for day trading? Let’s start with some basic features that meet the standards of day trading:

  • High liquidity: The convenience of buying and selling in large quantities makes transactions smoother and ensures the fairness and efficiency of prices.
  • High volatility: If one wants to trade frequently to generate profits multiple times, then high volatility is a friend. Not only for the pricing of common financial products such as stocks and bonds, volatility also plays an important role in the pricing of other popular products such as options.
  • Low transaction costs: Frequent transactions should not lead to high transaction costs. Brokers provide staggered brokerage fees, where the transaction cost per unit decreases as the transaction volume increases. Low cost is a necessary condition for any day trading activity.
  • Margin trading/leverage: If a trader must hold a large amount of trading funds, no trader will actively trade frequently. The inherent benefit of leverage is that it allows traders to conduct a higher proportion of transactions with limited capital. Low capital requirements lead to high levels of trading activity throughout the market. However, leveraged trading or margin trading is a double-edged sword that can provide both profit and loss risk exposure. Care should be taken to keep trading within a cautious range.
  • Information availability: The market changes with the news, and day traders pay close attention to the information about the assets they trade. Not all brokers and trading platforms have easy and quick access to news related to all tools. Additional components such as text alerts on mobile devices may still be limited to the list of qualified instruments (e.g. top 30 or top 100). When choosing a day trading tool, the ease of use of news and related functions becomes a parameter of “worth having”.

Day trading tools

Let’s see which tools meet the above criteria and are most suitable for day trading:

Foreign exchange tools

The foreign exchange trading market operates 24/7, and foreign exchange tools are very suitable for short-term day trading because they have high volatility, large liquidity, low capital requirements and low transaction costs. However, care should be taken to choose a currency pair that suits the needs of day trading.

Foreign currency pairs should be avoided because they lack liquidity parameters. Most intraday foreign exchange transactions are conducted through recent foreign exchange futures, followed by foreign exchange options, foreign exchange spot transactions and foreign exchange binary options transactions. Day traders should choose traders who are familiar with and suitable for their desired trading strategies.

Index futures

One of the most liquid and most traded trading tools is the futures of popular indexes such as Standard & Poor’s. Index futures have high liquidity, low transaction costs, but low volatility. Day traders familiar with futures trading benefit from the high leverage of index futures trading.

Individual stock futures for volatile stocks

Like index futures, high-volatility stock futures are popular day trading tools. Traders should be cautious in choosing futures for the correct underlying stock, because the list of volatile stocks changes frequently.

Commodity Futures

The futures of highly liquid commodities such as crude oil and gold make it a good tool for day trading. Day trading of commodity futures also provides asset diversification that is different from ordinary stock or index trading.

Index options (and volatility stocks)

Options provide a low-cost alternative to expensive stocks. (For related insights, please read AAPL Options.) Carefully selected option positions (or option combinations) on highly tracked indexes and highly volatile hot stocks are suitable day trading tools because of their high liquidity and high volatility And low capital requirements. However, they usually come with high transaction costs.

Index-based ETF

Exchange-traded funds (ETFs) are becoming more and more popular as one of the most effective investment categories. These ETFs are not only suitable for long-term investors, but also for day traders because of their high liquidity and low transaction costs. ETFs carefully selected on common indexes such as the Standard & Poor’s 500 Index or commodities such as gold are the best choice for day traders.

Bond futures

Due to high capital requirements, bonds may not be the best trading tool for day trading. However, bond futures provide high liquidity, high trading volume, extremely low transaction costs and high leverage due to their lower risk profile. More importantly, the intraday trading of bond futures provides traders with much-needed diversification (depending on the overall economic cycle).

special attention items

In all futures and options transactions based on different underlying assets, the availability of the mini contract series provides the best combination of small contract sizes that require low capital investment and high trading volume. Beginners who explore day trading in the learning phase can start with mini-series contracts.

Bottom line

Day trading is an exciting and intense activity that usually attracts beginners. However, it has its own considerations. Unless the trader has fully understood and is familiar with its characteristics, he should not choose any financial instrument for trading. If the trader does not have the basic knowledge of the tool, trading the tool simply because it is at the top of the trading list is a clear sign of failure.

Before starting to use any tool for day trading, traders should carefully study and be familiar with the basic knowledge and the realistic possibilities of profitability.

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