There are a variety of various markets available to day trade, with stocks, futures and forex being essentially the most popular. Each of these markets has its personal advantages and disadvantages for a day trader. In this article, I'll lay out why I consider U.S. stocks (that's, these stocks listed on a U.S. alternate) signify the best market to concentrate on for a day trader.
The Advantages Of Stocks For A Day Trader
Let's begin first with the advantages of stocks for a day trader:
1. Number of stocks to trade: Essentially the most vital advantage that stocks have over every other market is the number of stocks available to trade. There are millions of stocks listed on the three main exchanges (New York Stock Change, NASDAQ, and the American Stock Trade), and every one in all these stocks represents a possible opportunity for a day trader. Even on days when the general stock market might not move that a lot, you will be guaranteed to search out not less than a handful of stocks with glorious volatility and volume. With each futures and forex, you're stuck with a handful of markets to trade so on days when those markets aren't transferring, there might not be much opportunity for a day trader to make money.
2. Access to almost each asset class: With the rise in ETFs (Alternate-Traded Funds), stock traders now have access to a wide range of totally different asset classes for the very first time. Whereas earlier than a stock trader who wished to trade Treasuries or the spot price of gold had to take action in different markets, now they can merely place a trade in TLT (the 20-year Treasury ETF) or GLD (the gold ETF) without having to enterprise into the bond or futures markets. The great thing about these ETFs is that whereas before stock day traders may only trade the value of individual firms, now they can trade the value of practically any major market or asset class in the world. In different words, being a stock day trader can nonetheless grant you access to methods to trade most futures and forex markets, whereas traders in those markets do not have methods to trade individual stocks.
3. Professional help - There are more reference [1] professional trading corporations that cater to individual stock day traders than any other market. These companies present training, high-speed direct connections to the exchanges, access to ultra-low cost commissions not available to retail traders, office area and a bunch of different advantages to a day trader. For my part, trading at one of these proprietary trading firms is one of the best ways to begin your profession if you're serious about becoming a professional trader.
4. Institutional participation - I additionally suppose stocks signify such great day trading automobiles due to the quantity of institutional participation within the stock market. By institutions, I'm referring to these pension funds, mutual funds, and hedge funds with massive stock holdings. Why is that this vital? Because when these behemoths need to buy or sell a selected stock, you may bet that the price of that stock is going to move! In contrast to a person investor that may buy a handful of shares of a company, these establishments might purchase hundreds of thousands or even hundreds of thousands of shares of that very same company. A big part of my own trading and the methods I teach my students revolves around identifying and taking advantage of those giant institutions.
Disadvantages:
Now there are a few disadvantages to day trading stocks:
1. The Pattern Day Trader Rule - This SEC rule basically states that pattern day traders (outlined as those who purchase and sell a selected security in the identical trading day, and do that four or more occasions in any 5 consecutive enterprise day period) must preserve a minimum balance of $25,000 of their account. When you have less than $25,000, nonetheless, you can bypass this rule by trading at a proprietary trading firm.
2. Leverage - Many people level to the smaller amount of leverage available to stock day traders compared to different markets corresponding to forex and futures. This is true just for retail day traders and never for these of us day traders that trade at a proprietary trading firm. These prop corporations can present access to larger amounts of leverage than retail day trading accounts. Also do not forget that leverage is a double-edged sword in that your losses are also magnified. Trading an over-leveraged account as a starting trader is a certainfire solution to end your trading career before it even begins.
Conclusion
Whereas I could also be slightly biased in that I day trade stocks for a residing, I really do suppose that stocks characterize the most effective opportunities for a day trader. The big selection of stocks to trade, the unparalleled entry to just about each asset class and the institutional participation out there allow skilled to day traders to extract profits from stocks on a consistent basis. Whereas there are a couple downsides to retail stock day trading, these issues are eradicated when trading for a proprietary trading firm.