Must Have Day Trading Instruments

Must Have Day Trading Instruments

Must Have Day Trading Instruments

Day trading is the art of buying and selling trading instruments with the aim of generating quick profits in a day. While in the past people used to view day trading as another way of gambling, it has grown in popularity to become a reliable way of generating income to sustain certain standards of living.
Day trading has evolved a great deal, due to the different types of strategies deployed by traders to squeeze profits from the various trading instruments.
The most popular trading instruments that investors use for day trading include futures, options currencies, and stocks.
There are two main factors to consider when selecting a trading instrument for successful day trading.


Liquidity refers to the ability to execute orders of any size, quickly and efficiently, without experiencing a significant change in the underlying price. It is usually measured in terms of how tight a bid and ask spread is, how long a market bounces after a large order is filled as well as how long it takes for a large order to be executed.


Volatility refers to the amount of time it takes for a given price to move from one point to another. Volatile assets make it easy for traders to enter and exit positions with ease, and in the process generate profits. However, if caution is not taken, once capital can also be wiped out, due to high price swings.

Below are some of the most popular day trading instruments.

Forex Instruments

The forex market is the largest market in the world, due to the high levels of liquidity and volatility that attract millions of traders around the world. Currencies from some of the major economies are considered the most popular trading instruments, on this front.

Some of the most popular currency pairs for day trading include EUR/USD, GBP/USD USD/JPY. These currency pairs command high liquidity and volatility. They also have a low capital requirement for day trading.

However, exotic currency pairs should be avoided as they lack consistent market activity which means they come with low volatility. Brokers also tend to charge high markup fees to trade these pairs.

Some of these currencies include UAE Dirham (AED), Chilean Peso (CLP), South Korean Won (KRW) AND Singaporean Dollar (SGD).

Advantages of Forex Instruments for Day Trading

Unlike other day trading instruments, forex instruments come with low day trading costs.

The fact that forex Instruments ran all day long, provide an opportunity for one to deploy various trading strategies.

High liquidity is another attribute common in the financial markets, which means large orders can be executed and filed without big variations in price.

There is no central body such as exchange or regulator that regulates forex instruments.

Disadvantages of Forex Instruments for Day Trading

The fact that Forex instruments are deregulated leads to a lack of transparency in the market. Being a broker-driven market, traders may not have a control over how their orders get filled when dealing with unregulated brokers.

Currency pair’s prices are normally influenced by multiple factors such as politics and economics that can be difficult to analyze and interpret for a profitable day trading experience.

If caution is not taken, high volatility can result in huge losses during macro-economics and geopolitical tensions.


Index Futures

Index Future are financial instruments that represent future contracts of stocks or financial index. For example, Stock Index Futures, bet on the direction of equity markets on tracking a key stock market indices. One of the most popular index Futures is the S&P 500.

Advantages of Index Futures

Just like forex instruments, Index Futures are some of the most liquid and high volume trading financial instruments perfect for day trading.

Index Futures are also highly liquid, which makes it easy to enter and exit positions.

They also come with low transaction and trading costs.


Index Futures are less volatile compared to other financial instruments.

High leverage with index futures can be one’s worst nightmare during high volatility trading day trading sessions, leading to a margin call.

Index Futures are not for people who don’t understand how the futures market works, given the potential impact of unexpected events.

Exchange Traded Funds

Exchange Traded Funds are trading instruments that try to mimic the performance of a given index. Given that they trade like stocks in regulated exchanges, they can be bought and sold in a day. Some of the most popular ETFs include SPDR S&P 500 that tracks the S&P 500 and Russell 2000 Index Fund that tracks Russell 2000 index.


ETFs allow day traders to trade highly diversified assets whose performance may not be affected one stock. They also track a broader range of stocks.

ETFs come with low trading fees as they trade like equity investments. Their expense ratio is also much lower as they are passively managed.

ETFs are tax efficient than mutual funds as most of the tax on capital gains is paid on sales.


Some ETFs limit one’s exposure to large-cap stocks yet there are small and mid-cap stocks known to generate significant value.

Dividend Yields of most ETFs is usually lower compared to those of individual stocks or a group of stocks.


Commodities are some of the most popular day trading instruments. Commodities are classified into precious metals, industrial metals, and meat, energy, livestock and agricultural.

The most popular commodities for day trading include crude oil, gold as a precious metal, and corn, sugar on the agricultural products sector.


Growth in demand for a particular commodity can result in a rapid increase in prices to the benefit of day traders.

Day trading commodities provide day traders a way of diversifying their trading portfolios

Commodities normally benefit from inflation, which is known to weigh down stock and bond investment returns.


Commodities are some of the most volatile asset class, twice as stocks. The high volatility makes day trading such items quite risky.

Unlike ETFs and stocks are known to generate passive income in the form of Dividends, commodities don’t generate any form income.


There are thousands of stocks that one can buy and sell and in the process generate significant returns as a day trader. Stocks remain some of the most popular day trading instruments more so with active traders, because of their high liquidity.


Stocks of large-cap companies are usually volatile, which makes it easy for people to generate profits on price swings.

Stocks command high liquidity compared to other financial instruments which make it easy to enter and exit positions.

There is a wide variety of stocks available in the market that one can choose from, for day trading purposes.

Day trading can be lucrative if done in the right way and on the selection of the best trading instruments. However, it can also be a dangerous game for those who are new to the game and don’t have a well-thought strategy.

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