There are a selection of different markets available to day trade, with stocks, futures and forex being probably the most popular. Every of those markets has its own advantages and disadvantages for a day trader. In this article, I'll lay out why I consider U.S. stocks (that's, those stocks listed on a U.S. trade) represent one of 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: Probably the most important advantage that stocks have over each other market is the number of stocks available to trade. There are thousands of stocks listed on the three main exchanges (New York Stock Alternate, NASDAQ, and the American Stock Alternate), and every one among these stocks represents a potential alternative for a day trader. Even on days when the overall stock market
might not move that a lot, you will be guaranteed to seek out at least a handful of stocks with glorious volatility and volume. With each futures and forex, you are caught with a handful of markets to trade so on days when those markets aren't shifting, there may not be much alternative for a day trader to make money.
2. Access to almost every asset class: With the rise in ETFs (Alternate-Traded Funds), stock traders now have access to a wide range of different asset lessons for the very first time. Whereas before a stock trader who needed to trade Treasuries or the spot value of gold had to do so in different markets, now they can merely place a trade in TLT (the 20-12 months Treasury ETF) or GLD (the gold ETF) without having to enterprise into the bond or futures markets. The beauty of these ETFs is that whereas earlier than stock day traders may only trade the value of particular person firms, now they will trade the value of practically any major market or asset class in the world. In other words, being a stock day trader can nonetheless grant you entry to methods to trade most futures and forex markets, whereas traders in those markets do not have ways to trade individual stocks.
3. Skilled assist - There are more professional trading companies that cater to individual stock day traders than any other market. These corporations provide training, high-pace direct connections to the exchanges, access to ultra-cheap commissions not available to retail traders, office space and a bunch of other advantages to a day trader. In my view, trading at considered one of these proprietary trading firms is the easiest way to begin your profession in the event you're critical about becoming an expert trader.
4. Institutional participation - I additionally think stocks symbolize such nice day trading automobiles as a result of amount of institutional participation in the stock market. By establishments, I'm referring to these pension funds, mutual funds, and hedge funds with large stock holdings. Why is that this vital? Because when these behemoths need to buy or promote a selected stock, you possibly can guess that the price of that stock is going to move! In contrast to a person investor that may buy a handful of shares of an organization, these institutions may purchase hundreds of hundreds and even thousands and thousands of shares of that very same company. A big a part of my very own trading and the strategies I teach my students revolves around figuring out and taking advantage of these massive institutions.
Now there are a number of disadvantages to day trading stocks:
1. The Pattern Day Trader Rule - This SEC rule basically states that pattern day traders (defined as those that purchase and sell a specific security in the same trading day, and do this 4 or more occasions in any 5 consecutive enterprise day period) should maintain a minimal balance of $25,000 in 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 individuals point to the smaller amount of leverage available to stock day traders compared to other markets such as forex and futures. This is true just for retail day traders and not for those of us day traders that trade at a proprietary trading firm. These prop firms can provide entry to greater quantities of leverage than retail day trading accounts. Additionally keep in mind that leverage is a double-edged sword in that your losses are also magnified. Trading an over-leveraged account as a beginning trader is a surefire option to end your trading profession before it even begins.
Whereas I may be slightly biased in that I day trade stocks for a residing, I really do assume that stocks signify the best alternatives for a day trader. The wide array of stocks to trade, the unparalleled access to just about every asset class and the institutional participation in the market permit skilled to day traders to extract earnings from stocks on a constant basis. While there are a couple downsides to retail stock day trading, these points are eliminated when trading for a proprietary trading firm.