July 12, 2024

Business Bib

Business & Finance Blog

Qualities and Examples of Ideal Day Trading Instruments

3 min read

Day trading is not an easy task to do. First off, picking a day trading instrument requires scrutiny and carefulness. Here are the qualities of a good day trading instrument and some examples.

Qualities of a Good Day Trading Instruments

High liquidity

This refers to the ease of buying and selling in large amounts. High liquidity helps for easier trading while also ensuring price fairness and efficiency.

High volatility

High volatility is definitely a must if one wants to trade with frequently with an aim to generate profits multiple times. Volatility plays a crucial role for pricing other popular products like options.

Low Transactional Costs

Frequent trading should not lead to high transactional costs as day trading involves a lot of transactions within a single day. Brokers offer staggered brokerage charges wherein the per unit trading cost lowers as one trades in higher volumes.

Margin Trading/Leverage

The benefit of leverage is that it allows traders to trade higher proportions with limited capital. A low capital requirement leads to a high level of trading activities in the overall markets. However, remember that leveraged trading may also lead to huge losses.

Access to Information

A day trader must have quick and easy access to market news and information all the time.

Examples of Good Day Trading Instruments

Forex Instruments

The forex market runs 24/7 and forex instruments are perfect for short-term day trading. They also offer high volatility, high liquidity, low capital requirements, and low transactional costs. On the other hand, care should be taken to select an apt currency pair that will match the requirements of day trading.

The majority of forex day trades take place via near-term forex futures, closely followed by forex options, forex spot trading, and forex binary options trading.

Index Futures

One of the most liquid and high volume trading instruments is futures on popular indices like the S&P 500. Index futures are highly liquid and come with low transaction costs, but they are less volatile. Day traders who are familiar with futures trading benefit from the high leverage available on index futures trading.

Stocks Futures

Day traders also trade futures on highly volatile stocks. Traders should be careful about selecting futures on the right underlying stocks since the list of volatile stocks changes often,

Commodity Futures

Futures on highly liquid commodity such as crude oil and gold make them good instruments for day trading. Day trading in commodity futures also provides a diversification of assets from the usual equity or index-based trading.

Index based ETFs

Exchange traded funds are gaining steam as one of the most efficient investment classes. These ETFs are good not only for long-term investors, but also day traders, because of their high liquidity and the low cost of trading.

Carefully picked ETFs on common indexes like the S&P 500 or commodities like gold are the best bets for day traders.

Bond Futures

Bonds may not be the best trading instruments for day trading because of the high capital requirement. On the other hand, bond futures provide high liquidity, high volume, and very low transaction costs, and high leverage because of their lower risk profile. Get the Wibest Best Brokers to help with WibestBroker Stock Markets