Top Intraday Trading Instruments for Traders
Intraday trading or day trading is the practice of buying and selling of financial instruments within one trading day, without carrying any financial instruments overnight. This is a highly risky game and it is only after much practice can you succeed in it.
While one of the most common types of instruments in which intraday trading is done are stocks, there are also many other instruments such as futures, options, index funds etc, which are a favourite among intraday traders.
Each instrument has its own rules of the game and various factors affecting its movement. For example, futures and options have expiry to them, whereas ETF is directly linked to a whole index. Commodity market is traded on a different platform as are the currency pairs like USD INR or USDGBP.
Before you choose your favorite trading instrument for intraday trades, it is necessary to know about each of these instruments and their qualities. Let us begin with the simplest to the most complex in this list
Top Intraday Trading Instruments for Traders
1.Stocks
These are the most common and most preferred instruments in intraday trading. Stocks are shares of a company with each share representing a part of ownership of the company. Stocks come under the equity segment of the markets and are often traded on stock exchanges. In India, the stock exchange timings are from 9:30 am to 3:30 pm and it is between this time period that intraday traders buy and sell stocks.
2. Stock Futures
These are the derivative instruments in which the underlying assets are the stocks themselves. Not all companies’ stocks have stock futures. There are only a few companies which issue their stock futures for the purpose of speculation as to whether the price of the stock will go up or down. The stock futures also fall under equity segment and are also traded on the stock exchange within the market hours of the exchange.
3.ETFs
An ETF is an exchange traded fund and is issued by the exchange itself. An ETF is essentially a fund which is a smaller unit of the entire exchange. An ETF is a basket of securities comprised within an exchange. They are also traded like stocks and hence have a fairly good amount of volatility to be traded in the intraday trading markets.
4.Index futures
A stock exchange’s index is the overall indicator of the performance of the entire stock market, based on the performance of its best listed companies. In India, Nifty and Sensex are the two indices which are often quoted while referring to the company’s economic strength. Derivative instruments which are based on these indices and which are mainly used to speculate the future price movement of the index are called index futures and are also traded like stocks on the index. Nifty futures are a common instruments used by intraday traders in the markets
5. Stock and Index Options
Options are slightly different than stock futures as options bet that a particular price of the stock will be achieved. Options give the holder the right but not the obligation to buy or sell a particular security. Just like futures, not all companies have their options listed. Only few of those which have high volumes and volatility release options. Options just like futures come with an expiry and are also traded on the stock exchange
6. Forex instruments
Forex instruments such as foreign currency or crypto currency are also a fairly common instrument for intraday traders. Forex trading is done on a separate platform than the equity trading and forex trading is pen throughout the day in many parts of the world. This instrument generally has high volatility and low requirement of investment capital, which makes forex trading a favorite among intraday traders who understand the market movements and how global events result in changes in the currency rates
7. Commodity futures
Commodities, just like stocks, are also available for trading. However, for intraday trades, this is available in the form of commodity futures. Commodity futures of highly liquid commodities such as gold, silver, crude oil, zinc, copper etc. give the perfect opportunity to traders to speculate their price movement. Since the day trading in this instrument is done through futures, it comes with an expiry. In India, the commodity market is open from 10 am to 11.55pm in India’s multi commodity exchange (MCX).
8. Bond futures
These are also used by many intraday traders to speculate the prices of bonds, on the basis of their interest rates and coupon rates. Since bonds themselves cannot be traded like stocks due to the high investing capital needed, their futures offer the perfect mix of liquidity and volumes. Some traders choose bond futures for intraday trading to further diversify their holdings in the markets.
CONCLUSION
As you can understand, each trading instrument has different features and has different price patterns. Hence, it is important to first understand about your style of trading in intraday markets and then choose what is it that you wish to trade in. If you are still confused, then the best option would be for you to take help of an investment advisor who can guide you about the different instruments and suggest the best instrument for you, keeping in line with your risk taking capacity, willingness and your trading plan.
Author
CapitalVia
Pioneer in Investment Advisor
