Wondering what to trade? If something has a value and price moves in the market then you can trade it.
The more widely traded the market the shorter the timeframe that you can trade it.
Most trading at retail level (which is where we are operating) is done in Derivatives and Stocks.
Some of these derivative contracts are expensive. Financial futures contracts (commodity contracts, indices, exchange rate contracts etc) are often traded at $10,000 US per contract. If you are a commercial trader this money is peanuts but for us retail traders this is a considerable sum and trading these contracts at full value would be out of reach. We need to find access to these markets and contracts at a reduced initial outlay.
In order to make it possible for us to trade we need to either borrow the money to buy and short (sell to buy later) the contracts or we need to find markets where these contracts are traded at mini size (e-mini futures).
Your access to the markets
Brokers
Brokers and their electronic trading portals give us access to products that are designed to mirror the actual markets, they “lend” us money to trade and also give us direct access to these markets and exchanges.
Effectively the brokers take the leg-work out of trading for the retail trader. They charge us fees for their services. They may charge fees for access to the markets via their online trading software (although some will give free access to regular traders) and they also charge fees per trade.
What to trade?
Futures
Most commodity trading exchange rate and index trading – stock index (Dow Jones, FTSE, DAX etc) and other indexes – is done using Futures. Futures are the most common type of derivative traded by retail traders.
Futures allow two parties to buy or sell a financial instrument, asset or stock index now for a pre-determined price at a future date.
Futures Exchanges provide the market for these contracts. Traders operate in buying and selling the contracts (or parts of these contracts) in these markets. The trading in the market is often completed intra period and so the contract is not held by the trader to the redemption date.
Often the price of the future contracts mirrors the price of the underlying assets as otherwise institutional traders could make a fast buck trading the difference.
Stocks & Shares
Brokers also give us access to the stocks and shares of publicly listed companies.
Most small company shares don’t move much intraday so are of little use for Day Traders. Also shares in smaller companies can be illiquid, meaning that as they are not widely traded you might find that your broker cannot easily buy and sell them for the current price. In order to trade you need to be able to buy and sell instantly, therefore these stocks are generally no good for retail traders.
Day Traders tend to look for Stocks in Play. Stocks in Play are stocks that do move intraday. They tend to be stocks in companies with recognisable names. Stocks in Play are widely traded.
Traders have their own rules for which stocks qualify for their potential trades and this criteria is normally dictated to by the timescales that they trade over and the risk that they would like to take.
Options, forwards and swaps
Options, forwards (other than futures) and swaps are not regularly traded by retail traders.
Which broker and which market to trade?
The key to finding the right market for you is to find a broker that provides:
- good value (low charges)
- a comprehensive list of markets
- live price charts
- demo trading accounts
- charting software or internet browser based charts
- the right product wrapper for you based on your trading objectives (Access to futures exchanges, Direct Market Access, Spread-betting – UK only – CFDs, etc) and available capital.
Once you have found a broker then have a flick through some markets and their charts. Think about the timeframe that you would like to trade. Look at how the markets move on the charts and the volatility in the markets during your trading timeframes. Pay attention to the charges for trading. If a market moves sufficiently and the charges are reasonable then you can trade it.
Path to becoming a Consistently Profitable Trader – Use a demo account at first
I always recommend trading a demo account first of all. Demo accounts get you used to the brokers trading platform. You will probably press the wrong button several times in the early stages so make these mistakes on a demo account where they do not cost you money.
Get used to both buying (going long) and selling (going short). Trial the ease of use and speed of reaction that you get from the trading platform.
Plot your favourite trading indicators, your support and resistance levels on your charts. Experiment.
Develop your trading system. We can help you with this. In our Day Trading and Swing Trading training course we discuss lots of different systems that can be used and assist you in designing and operating the trading system that works best for you given the funds that you have at your disposal and your objective.
Back test your trading system using historic price charts.
Trade your system.
Once you are trading profitably then you can trade using live markets. If you are trading a demo account profitably and using the same system you are not trading a live account profitably then the reason is probably that you are suffering from emotional trading. Psychology in trading is hugely important and you need to master yourself before you master the markets. We give you tools to do this in our Trading training course.