• Thu. Feb 22nd, 2024

Which Market is Best for Day Trading? Stocks, Forex, or Futures?

Here’s a breakdown of which market is best for you to day trade, based on your interests, how much capital you have (capital requirements vary by market), when you can trade, and return potential.

Return Potential for Day Trading Stocks, Forex, and Futures

All markets are potentially lucrative and one market isn’t better than another. All offer great reward potential, and one isn’t easier than another. I have traded all these markets and all of them can make a day trader a great living. Therefore, return potential isn’t a concern. You can make great returns in stocks, forex, and futures.

That said, futures and forex provide more leverage than stocks. You can trade bigger positions with smaller amounts of capital. To counteract this though, certain stocks can move a lot, futures can also have significant movement, and forex tends to move the least. Therefore, the leverage in forex simply makes up for less movement than stocks.

No single market has a sustained advantage over another in terms of returns.

I will look at returns a little more in-depth at the end of the article, including commissions, which may impact your decision depending on where you live.

What Day Trading Market Are You Interested In?

Day trade a market you have a passion for, and that interests you. Passion is like lighter fluid because if you’re passionate you’ll do way more work—because it doesn’t feel like work—than someone who doesn’t really like trading but just wants to make some money.

As discussed in Why Most Traders Lose Money, to be a successful trader means being better than most other traders…and that takes work. People with a passion for what they’re doing will put in way more work, because they love it, and are more likely to become successful than people who try to put in the bare minimum amount of work and learning.

The day trading success rate is low. You stand the best chance if you enjoy the activity which means you’ll be putting in more hours, for more months and years, than others.

When I started out on my trading journey, I didn’t know much about futures or forex. I started with stocks because the stock market fascinated me. And stocks were a great place to start for me. As I learned about forex and futures, I became interested in them and traded them as well.

Pick one market to start with, but you are not committed to that market for life. You can always learn about another market later on. But start with the one you are most interested in right now.

How Much Capital Do You Have for Day Trading?

Simply put, you can start day trading forex with almost any amount of capital, for day trading futures you will need more, and for day trading stocks you will need the most (in the US, elsewhere, you can trade the amount you want).

  • For day trading forex, it is feasible to start with as little as $100. This isn’t going to produce a lot of income, so I suggest starting with $500 or more. Yet you can start with $100 if you want and still trade in a risk-controlled way. See How Much Money to Trade Forex for more details.

    Most forex brokers offer leverage of at least 30:1, so a trader can take positions worth up to $3,000 with that $100. Or 30x their deposited capital. Even with only $100 (or more), risk on each trade can be kept at 1% or less with proper position sizing, which is ideal. Leverage is there if you need it, it doesn’t mean you have to use it.

  • Day trading futures will take more capital than forex. How much capital is needed depends on which futures contract is being traded (gold, S&P 500, etc.). But generally, I would say start with at least $8,000 if day trading the S&P e-minis (ES), which is one of the most popular contracts. This allows for a reasonable stop loss while still keeping risk below 1% per trade with proper position sizing.
    • There are micro-futures contracts, which require less capital than mini-contracts…about 1/10. With these contracts, it’s possible to start day trading with about $800. They generally have less volume and higher commissions, so they are not ideal, but may be a good place to start before moving up to the mini (bigger) contracts.
  • If you live in the US and day trade US stocks, you are required to have at least $25,000 in your account according to SEC regulations. If you execute 4 or more day trades within a 5-day period, you are considered a day trader. Once you are flagged as a day trader, you’ll need $25,000 in the account to place day trades. This makes it the most capital-intensive day trading market.
    • If you are in another country, you can probably trade stocks in your own country, or another (including the US), without the $25k rule applying to you. Therefore, you can trade with whatever amount of capital you wish. For example, Canadians can day trade US stocks with less than $25k, if they wish.
    • You can estimate how much capital you need by understanding proper stock position sizing while keeping risk at 1% or below on each trade.
    • If you are in the US, you need $25K+. If you are in another country, you can estimate how much capital you need by looking at the commissions you pay. If you pay a fixed commission of $5+ per trade, then you will likely need at least $5000 (estimate). With small amounts of capital, commissions can really eat into profits/add to losses. The smaller the account, the more commissions hurt.
    • When day trading in the US, you can utilize up to 4:1 leverage, so with $25k+ you can take up to $100,000+ in positions. Most other countries have similar rules.

If you don’t have a lot of capital to day trade with, then forex is the way to go. If that doesn’t interest you, then save up and trade futures or stocks. Trading is hard enough, and trying to do it with too little capital will make it even tougher.

What Time of Day Can You Day Trade?

Each market has ideal times to trade it. Consider when you can trade, as one market may fit into your schedule better. With day trading, less is often more. There is no reason to day trade for many hours. Trading for 0.5 to 2 hours is often enough to capture some good trading opportunities during the ideal times to trade.

  • With forex, you can place trades any time during the week. The market opens at 5 pm EST on Sunday and closes at 5 pm EST on Friday.

    For forex day trading, the entire London session is quite good. This is the ideal time to day trade. That is from 3 am EST to Noon EST. Trading within an hour before or after this is also an ok time (2 am to 1 pm EST). See EURUSD Daily Volatility and Price Movement Tendencies for more on this.

  • The ideal time for trading futures contracts will vary a little bit depending on the contract, but most contracts see the most movement between 9 am and 11:30 am EST. Then the lunch hour kicks in and things are usually pretty slow. Between 1 pm and 4 pm (stock market close) there tends to be more action again, so this is also a good time to day trade. Some contacts have their official close earlier in the day.
    • Most futures contracts trade around the clock, so you may find there are some opportunities before 9 am, starting at about 3 am when London opens. If you can’t trade during the ideal time, then open up a chart and see if there is enough movement to implement your strategy between 3 am and 9 am.
  • With stocks, the ideal time to day trade is between 930 am and 1130 am EST, and then again from 1 pm to 4 pm.
    • I don’t recommend trading after 4 pm unless a company has earnings out and there is lots of action and volume. After the stock market closes at 4 pm, volume tends to dry up rapidly in most stocks and you don’t want to get stuck in a position.
    • You could trade some high-volume stocks between 8 am and 9 am (or even a bit earlier), before the official stock market open, but trading can be choppy and erratic, and most stocks don’t have a lot of volume during this time.

Forex offers the most flexibility in terms of when to place trades, futures are also quite flexible, and for day trading stocks you need to be available during pretty specific hours.

Day Trading Return Potential for Forex, Stocks, and Futures

This topic was touched on at the top of the article. I will go into a bit more detail here, but I put it at the bottom because NO ONE SHOULD DECIDE WHICH MARKET TO DAY TRADE BASED SOLELY ON RETURN POTENTIAL…for all the reasons listed above. You want to trade something you are passionate about, that you have time for, and that you have the capital for. If those align, you will probably make better returns than if you are trading a market you don’t really like.

Scenarios for How Much Forex Day Traders Can Make discusses the return potential when risking 1% per trade (substitute a different percentage if desired).

The one possible factor affecting returns is commissions.

Commissions reduce your overall profit. Commissions reduce the amount you make on winning trades and increase the amount you lose on losing trades. The higher the commission, the more it hurts, and the less money left in your pocket after paying them.

Commissions vary significantly around the world for different markets. Therefore, you’ll need to look at the fees you have access to with various brokers in your county. This may also help you decide which market is best for you.

Here are some summary points on commissions in the US and abroad. Yet remember, you may have choices with other brokers, and you may be able to negotiate with your broker to give you better commission rates.

  • In the US, stocks are very cheap to trade, free with many brokers. That said, you have the $25K account size minimum. So if you are in the US, and can afford the $25K minimum account size, it’s a good way to go.
  • In the US, forex commissions and futures commissions are high compared to stocks, but you don’t have the account size minimum that is required for stocks. US futures commissions are competitive with the global brokers, but the US has some of the highest forex commissions in the world.
  • Internationally, day traders can find very cheap forex brokers, even some that offer low spreads and no commissions. This makes forex popular among the international community. But stock commissions tend to be higher globally than in the US; go with a low-cost broker like Interactive Brokers if trading stocks or futures internationally.

Which Day Trading Market is Best For Me?

Only you can answer which market is best for you after considering what you are most interested in, how much capital you have, and what time of day you can trade. All the markets offer great return potential, and no market is easier than another, so I wouldn’t base your decision on that.

The main thing is to trade what you are interested in. This is the most important thing. Once we have decided that, we can then arrange our time and come up with the money to make that happen.

I like day trading the EURUSD. The method I use is covered in detail in the EURUSD Day Trading Course. I also day trade stocks. You can see the method for day trading stocks in the Price Action Stock Day Trading Course.

Frequently Asked Questions

What are some day trading strategies?

For trading active stocks (ones that move a lot each day), consider a trend-following strategy using a 1-minute chart to capture trends that occur regularly during the day. No matter what market is traded, or method used, it is helpful to learn and understand the concepts of price action, which is spotting trends and reversals in real time.

You may also want to day trade stocks that have earnings announcements.

What chart time frame should I use a day trader?

Day traders will typically use a 1, 5, 10, or 15-minute chart, or anything in between. The 1-minute chart shows more detail than the longer time frames. Typically, the smaller the time frame used, the more potential trading opportunities. Larger time frames generally offer fewer trading opportunities, and stop losses and targets will generally be bigger than on smaller time frames.

Can I lose a lot of money day trading?

Some people make a lot, while others lose a lot. When learning, and even for professionals, consider setting a daily limit of how much you can lose. Everyone is bound to have a bad day sometimes, so having a daily loss limit assures that no single day hurts the account. To enforce this, also set a maximum loss on each trade, called a stop loss order, so that if a certain amount is lost the trade is closed automatically.

How many hours do day traders work?

Some day traders will trade up to four or five hours per day, but this is not required. Each market typically offers a few hours each day with lots of trading opportunities. Even day trading one to two hours is often enough to capture a few of these opportunities.

By Cory Mitchell, CMT

Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.


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