How to choose the best markets for day trading

The decision which market to choose for day trading is of great importance. It will influence your future actions and results. To make such a decision, you will need basic knowledge about different types of markets, their volume, liquidity and volatility. Today’s article will guide you through this topic.

The overview of different markets

Stock market

This is one of the most commonly traded markets. The principals are simple, you can buy or sell a specific company shares. It gives you an opportunity to make a profit on the shares of such famous companies as Google, Amazon, BP or Shell.

The stock market offers a large number of indices. You will find there FTSE 100 with a hundred of the biggest companies on the London Stock Exchange, Dax 30 with thirty main companies on the Frankfurt Stock Exchange, Hang-Seng with fifty companies on the Hong Kong Stock Exchange. Moreover, there is an S&P 500 with five hundred most popular US stocks, Dow Jones Industrial Average with thirty of the biggest US companies and NASDAQ Composite with the titans of the world’s technology.

The stock market is so popular among day traders that you will find plenty of tutorials and courses on the web. There are also blogs written about it, books and online forums.

Significant issues

The stock market is one of the most famous ones and thus there is a huge competition. This is why it might be not the best idea to choose it at the beginning of your trading venture.

Another thing is that in some countries you will need to deposit quite a lot in your account. It is, for example, $25,000 in the US. This is another reason why I do not recommend it for beginners.

Nevertheless, if you are an experienced trader and you want to read more about the stock market, check our article with a comparison of traditional stock trading vs. trading stocks via CFD.

Forex market

Forex is based upon trading a currency pair. Your task is to decide whether the future price of one currency in relation to another will be higher or lower. Depending on your predictions you will buy or sell.

Important issues

Day trading in the forex market brings some good and some bad sides. One of the advantages is that you do not have to worry about the time. Forex operates 24/7 so it is easy to combine your trading session with other duties. Moreover, only a small deposit is required. You can begin with just $100 in the account. Another good side is that normally, there is no commission taken by brokers (or it is a very small one).

Now the bad sides. It is the truth that you can trade forex nearly all the time, however, not every time is good for it. Each currency pair is characterised by volatility and volume. For example, if you choose the EURUSD or GBPUSD currency pairs, it will be best to trade between 08:00 and 22:00 GMT. Additionally, you should expect some false trading signals as the market is pretty crowded and volatile. The two pairs mentioned above seem to be the best choice for beginners.

Be careful with leverage. It is a magnificent tool that can boost your earnings, but it can just as quickly take you down.

You will find many tutorials on forex day trading online. The forex market has become so popular due to its accessibility. You do not need high opening investment, you can trade during various hours and you can use the help of many free tutorials and strategies.

CFD market

CFD is a contract for difference that you make with your broker. It requires that you buy or sell when the price is moving. Your contract begins when you enter the trade and finishes when you exit it. Your task is to predict whether the price will rise or fall, then buy or sell. Using CFDs gives you the opportunity to trade a wide range of assets without owning them.

Significant issues

The diversity of the CFD market is huge and constantly increasing. You can choose from more than 10,000 instruments to day trade.

You can apply leverage when trading CFDs which can significantly expand your profits. Do not forget, however, that this might as well increase losses.

With many brokers, you will not pay commission, nor the expiry date is determined. But you may be asked to pay quite a high bid/ask spread, though.

Options market

The options market has gained huge popularity and is available on most trading platforms. It offers you a chance to buy or sell the option without becoming the owner of the underlying asset.

There are generally two types of options. One is called Put option and allows you to sell at a specific price. The second one is known as Call option and enables you to buy at a certain price.

You get to trade options in a variety of markets such as index options, stock options, ETF options, forex options, commodity options. I recommend that you familiarise yourself with the following article about options trading.

Binary option

This is yet another market where you have to predict the future price of the underlying instrument. You need to specify whether it will be higher or lower at a predetermined time. In binary options trading, you are aware from the beginning what is the potential gain or loss.

You can trade binary options in any market, even forex, cryptocurrencies, crude oil, Google or Tesla.

The binary options market is an interesting choice for those who like straightforward markets and who want access to global stocks while maintaining a small amount of capital.

Cryptocurrency market

The cryptocurrency market is relatively new, yet its popularity is constantly rising. Cryptocurrencies are a good choice for intraday traders as cryptos volatility is high. The best-known digital currency is bitcoin. From the beginning, the price of bitcoin went from cents up to 20.000 US dollars in 2017. Other popular cryptos are Stellar Lumen, Ethereum, Litecoin, Dash, Carando or Ripple.

Important issues

The initial investment is quite low when you decide to day trade cryptocurrencies. You can begin with a small amount or occasionally you may even receive some free bitcoins or Lumens. You can trade them without paying for a platform membership which can happen in the case of, for example, forex.

The volatility is high. Remember, however, that this gives you good chances for high profits, but also can result in a huge loss.

The cryptocurrency market is now easily accessible 24/7. Moreover, you will find plenty of educational resources online.

As this is a considerably new market, the regulations are still developed. Thus, you should be aware of scam brokers and know how to avoid them.

The cryptocurrency market will be suitable for you if you like technological novelty and you are not afraid of risk.

Deciding on a type of market for your day trading

There are many markets available for day trading and your choice must be consciously made. You must know the market and know your preferences as well. Consider the following determinants.

• Availability of resources. The market updates, online offer, day trading market news help you to understand the market and then make the right decisions.
• Market volatility. You get more possibilities to earn a profit when the price fluctuates a lot.
• Market liquidity. The higher liquidity the more opportunities for you to open trades.

Summary

Choosing the right market for day trading is an important decision you have to make. You have to take many factors into consideration. Think about your financial situation, risk tolerance and market knowledge.

Focus on one market at the beginning. The markets vary considerably and you should master one before you start exploring another. Otherwise, you can mix things up and end up in failure.

Many brokers offer demo accounts which are usually free of charge and supplied with virtual cash. You should practice day trading there before you invest your own capital.

Another good option is to utilise automated algorithmic trading. Such systems can improve the efficiency of the market.

Search for educational materials. There is plenty you will find on the web.

If you trade on one market for a while and you still do not feel it meets your expectations, you can always try another one.

Be thoughtful and gain experience.

Wish you good luck!