Day Trading Stocks & Options versus Futures
Day trading is a popular trading strategy among traders, investors, and speculators who seek to make profits by buying and selling securities within the same trading day. While day trading is an extremely difficult business, many people are captivated by it and the monetary return trading can offer. Day trading stocks, options, and futures are three common financial markets that offer different opportunities and challenges for day traders.
In this blog post, we will compare and contrast day trading stocks and options with day trading futures and highlight their benefits and drawbacks for day traders. We will also delve into the importance of technical analysis and fundamental analysis in these markets.
Day Trading Stocks and Options
Stocks and options are two of the most popular financial instruments for day traders. A stock represents ownership in a company, while an option is a contract that gives the buyer the right (but not the obligation) to buy or sell an underlying asset (such as a stock) at a certain price (the strike price) before a certain expiration date.
Benefits of Day Trading Stocks and Options
One of the main benefits of day trading stocks and options is liquidity. These markets are highly liquid, which means that there are always buyers and sellers willing to trade. This makes it easier for day traders to enter and exit trades quickly, without having to worry about slippage or lack of buyers/sellers.
Another advantage of day trading stocks and options is flexibility. Traders can choose from a wide range of stocks and options to trade, based on their trading style, risk tolerance, and market conditions. This means stocks and options day traders have a very wide variety of trading opportunities on a daily basis.
Furthermore, there are many sectors within the stock market and by using the right tools, a day trader can always look to trade the best performing sectors, which gives day traders and incredible edge in the stocks and options markets. For example, if the technology sector is performing the best for the day, a trader can solely focus on finding the best tech stocks and options and trade those only. This offers stocks and options day traders and incredible edge in these financial markets.
Drawbacks of Day Trading Stocks and Options
One of the main drawbacks of day trading stocks and options is volatility. These markets are prone to sudden price swings, which can result in significant gains or losses for day traders. It is crucial for traders to have a solid understanding of market dynamics and risk management strategies to avoid excessive losses and always keep their capital safe. Stocks usually move a lot based on company news releases, so traders have to always be careful when a company has bad news, as it can result in a significant and fast loss.
Another challenge of day trading stocks and options is the high capital requirement. In order to trade stocks and options, traders need to have a significant amount of capital, which can limit the number of trades they can make and their ability to diversify their portfolio. Fortunately, we have the right solution for that, so keep reading.
Technical Analysis and Fundamental Analysis in Day Trading Stocks and Options
Day traders in the stock market often rely on both technical analysis and fundamental analysis to identify highly-probable and profitable trades. Technical analysis involves using charts, technical indicators, and patterns to identify price movements and trading opportunities. Fundamental analysis involves analyzing a company’s financial health, management, industry trends, and other fundamental factors to determine the stock’s intrinsic value and potential for future growth.
Traders who use fundamental analysis often use scanners to identify stocks that meet their specific criteria, such as revenue growth, earnings growth, and financial stability. These scanners can help traders find stocks that meet their specific needs and can be an effective way to filter through the thousands of stocks available for trading.
At NeuroStreet Trading Academy’s Stocks & Options Prop Trader Program, we give you all the scanners, fundamentals and technical analysis tools, so that you know how to filter out the best stocks out of the thousands available in the market.
Day Trading Futures
Futures are financial contracts that obligate the buyer to purchase an underlying asset (such as a commodity or currency) at a predetermined price and time in the future. Futures are commonly used by producers and consumers of commodities to hedge against price volatility, but they are also used by traders and speculators to make profits by buying and selling futures contracts.
The most common futures that day traders speculate on are indices futures, like S&P500 (ES), NASDAQ100 (NQ), US30 (YM), commodities futures like Crude Oil (CL), Gold (GC) and also some currency futures like Euro (6E), Japanese Yen (6J) and more.
Benefits of Day Trading Futures
One of the main benefits of day trading futures is leverage. Futures contracts are highly leveraged, which means that traders can control a large amount of assets with a small amount of capital. This allows traders to make significant profits (or losses) with a relatively small investment. For example, a leverage of 1:100, allows you to control $100, with only $1 in your trading account. Amazing, right?
Another advantage of day trading futures is transparency and regulation. Futures markets are highly regulated, and trading data is publicly available, which means that traders can analyze market trends and make informed trading decisions.
Drawbacks of Day Trading Futures
One of the main drawbacks of day trading futures is liquidity. While some futures markets (such as the S&P 500 futures) are highly liquid, others (such as the agricultural futures) can be less liquid, which can make it more difficult for day traders to enter and exit trades quickly. But of course – a trader can make the choice to only trade indices and currencies futures, which are highly liquid.
Another challenge of day trading futures is volatility. Like stocks and options, futures markets are prone to sudden price swings, which can result in significant gains or losses for day traders, if strict risk management is not applied.
Furthermore, there are not many brokers that offer futures trading, so a day trader has to be careful when choosing the right broker and platform for their trading business.
Which one is better – Futures or Stocks & Options
The reality is that both financial instruments are great and one is not better than the other.
It really depends on you as a trader. There are different resources available for trading both financial instruments. As previously mentioned – trading stocks will require you to use fundamental scanners, price gappers and other scanning tools. Stocks are based a lot on major news catalysts, so that is where trading opportunity is – within expanding or dropping stocks.
With futures – you can only focus on a few charts, which offers you more focus and you can be more technical in your trading. If you love technical analysis and indicators – that could be the better market for you!
Our advice will be to try out both. Trade on a simulation account, test out different trading strategies, instruments and markets. Find out what is comfortable for you and then stick to the market that you love.
At NeuroStreet Trading Academy, we are the #1 school for Futures trading and we just launched a school for trading Stocks and Options, both of which focus on making you a funded trader and making 4-figures per day.
So, if you’d like to take a short-cut in your learning curve and learn from experts in the fields with decades of experience – join us at NeuroStreet.