Key TAKEAWAYS
Key TAKEAWAYS
Some of the instruments including stocks and bonds remain popular and commonly used securities whereas there are other instruments in the market as well like forex, futures, index funds, options, etc.
Depending upon the financial instrument, the working strategy of a trader varies. The movement of different instruments depends on various factors such as their life span and so on.
Sometimes, choosing the right instrument that can match traders’ strategies and the workflow seems hard and in financial markets, choosing the right thing is extremely important.
Choosing Day trading as a career?
Day trading involves buying and selling a ‘financial instrument’ within a single day. Various types of instruments are available in the market for traders to make use of. These instruments are capable of creating wealth for a trader if used correctly.
Stocks
Shares of a company are bought and sold in terms of stocks. Stocks entitle a trader to become a partial owner of the company depending on the number of shares or stocks the trader has. The asset and profit of the company depending upon the proportion of stocks belong to the trader.
Stocks are equities that can be sold and bought on stock exchanges as well as on private sales. Stocks enable companies to raise fund to support their businesses and at the same time allows investors to benefit from it.
It must be made clear that stockholders are not the owners of a company; they only own the shares of the company that is floated in the market by the owners.
In day trading, the volatility of a stock is important, and therefore, majorly day traders create wealth with stocks in two major ways:
Forex
Forex seems a perfect option for anyone who looks at the parameters of choosing a financial instrument for day trading due to its high volatility, high liquidity, low transactional cost, and low capital requirement. However, choosing the right currency pair is a deal creator or deal-breaker. Currency pairs that look exotic should be avoided as they are less liquid and involves more risk.
Moreover, selecting a Forex instrument that matches with a traders strategy is important, and major day trading in Forex happens in:
Bonds Futures
On one end, bonds seem unsuitable financial instrument for a day trader and on the other, Bond Futures seems the right ones to trade for due to less capital requirement and high leverage due to involvement of low risk. It involves selling or buying a Bond Future contract on a predetermined date at a specified price.
Commodity Futures
Contracting a Future on a commodity like gold and crude oil is becoming popular among day traders. Due to market fluctuations in these commodities due to their volatile nature, these are some of the diversified assets to look for while trading in financial markets
Index Futures
Index future involves low transactional costs and speculations are made on the Index’s price direction. These are contracts that involve transacting over an Index today that is settled on a preset date in the future. In this case, a trader has to deliver today’s cash value of the index before the expiration date of the contract.
Index-based ETFs
This is an efficient investment tool for a day trader and is becoming more popular. Index-based ETFs involve the low cost of trading and high liquidity that makes it an attractive tool for day traders as well. ETFs on commodities like gold and indexes like the S&P 500 are among the most utilized financial instruments by a day trader.
Day trading involves buying and selling a ‘financial instrument’ within a single day. Various types of instruments are available in the market for traders to make use of. These instruments are capable of creating wealth for a trader if used correctly.
A stock represents the ownership of a portion of any corporation. Depending on the amount of stocks that an investor owns, they are entitled to the same proportion of profit. Stocks are measured in terms of ‘shares’.
Futures are contracts that necessitate two parties to make a transaction over a certain asset at a particular time and date. The seller and buyer must sell and buy the asset at the set price, irrespective of the current market price at the expiration of the contract.
Currencies are traded in pairs, say USD/INR i.e. US dollar and Indian Rupee. For, example if the associated price with the pair is 74.38 which means it’s going to take 74.38 rupees to buy 1 US dollar. Traders speculate on the price movement of the currency and trade currencies to create profit.
Options trading can be compared with betting on the horses at the racetrack. So, the chances of either winning all the profit or losing it all are one of the key features of futures trading.
