Which Market To Day Trade? Stocks, Forex, Or Futures?

By:

James Knight

James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.

Updated: Oct 12, 2022

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In this article we will look at the pros and cons of each market, to help better assess which of these day trading markets is best for you and to better explain how to approach day trading. Which is best will vary based on your interests, capital, and time availability. We will also compare the income potential of each market.

Pick The Market You Are Interested In

Trading is a tough business. Few people, of the many who try, are able to make a living at day trading.

When something is challenging, you need to be passionate about it to get through the tough times and the long learning curve. Therefore, pick a market you are interested in. If you don’t know a lot about any of these three markets, this article will hopefully help you decide which one you are most interested in. If you aren’t really passionate or excited about day trading, then you are probably better off putting your time into something you are passionate about.

I have traded all three of these day trading markets extensively. At different times I have been passionate about all them, but I only focus on day trading one of them at a time. When starting out, pick one market. Learn it and start producing consistent income from it. In a few years you can branch out to another market if you need a change, but only focus on day trading one market at a time (note: I swing trade in multiple markets, but only day trade one at a time, because day trading requires much more focus so I don’t like to be looking at too many things while doing it).

While many strategies will work across the different markets, day trading is about maintaining focus and discipline at all times. If you are trying to learn too many markets, or trying to trade multiple markets at the same time, focus will waiver and opportunities will be missed.

Start with one market, stick with it, and build your skill. If you like that market, there is no reason to trade anything else. Being able to day trade other markets will not increase income. If you do decide to switch markets down the road, that is ok too. But, start out with the singular goal of mastering one market.

Income Potential

Stocks, forex, and futures are all great day trading markets. One common question is: Which market will I make more money in?

Stocks, forex, and futures all offer the same day trading income potential.

Therefore, income potential should not make you more interested in one market compared to another. Each market offers ample opportunity to make a living. What does vary is how much capital is required to enter the market.

Which Market To Day Trade: Capital Requirements

Stocks require the most capital to day trade. Next, is futures. Forex requires the least amount of capital to start day trading with.

To day trade stocks requires at least $25,000USD. This is the legal minimum for trading US stocks (may vary if trading other stock markets, but the US market is definitely one of the best for day trading). If the account balance drops below that figure, the broker will suspend day trading privileges until the balance is brought back above $25,000. In order to provide a bit of a buffer, it is recommended traders start with at least $30,000 if day trading stocks.

If day trade futures, one of the most common trading products is the S&P 500 E-mini (ES). While capital requirements will vary if trading another futures contract, as a general guideline starting with at least $8,000 or more is recommended. Many brokers will open accounts for as little as $1000, and let you trade with only $500 in the account, but this is not advised. Start with enough capital, such as $8,000 or more, to give yourself a fighting chance (as this can keep risk to less than 1% on each trade.)

To day trade forex, start with at least $500, and preferably $1000 or more if you want to start building an income. Many brokers will open accounts for as little as $100.

How Much Money Do I Need to Become a Day Trader provides more details on the capital requirements/recommendations of each market.

Remember, all markets have the same profit potential. Therefore, the less capital you start out with, the smaller the income. Just because you can start forex day trading with $500 and it takes $30,000 for day trading stocks, doesn’t make one better than the other in terms of percentage returns. One just allows you to start with less. If you make 10% a month in both markets, the account with more capital in it will obviously be making a larger income in dollars.

Which Market to Day Trade: When Can You Trade?

Forex and futures are 24-hour 5 day a week markets. Stocks are only actively traded between 9:30 and 4 PM Eastern Time (US stock market).

Therefore, a day trader must not only consider which market they are interested in and how much capital they have to trade with, but also when do they have time to physically trade?

There are certain times of the day that tend to be best for day trading the various markets, with the forex market being the most flexible.

Day trading, in a pair like the EURUSD or GBPUSD, offers the most options. I have found that day trading conditions are good from about 2 AM (European open) until about 1 PM Eastern time (London has closed and US market is starting to slow down). That is a big window to day trade within.

While futures also trade 24-hours a day, I have found the best time for day trading a contract like the S&P 500 E-mini (ES) is between 8:30 AM and 11:30 AM Eastern time and 1:30 PM to 4 PM. Prior to 8:30 AM volume tends to be too low. Between 11:30 and 1:30 is lunchtime, which isn’t a great day trading time. After lunch, there are opportunities until the stock market closes at 4 PM (the contract is based on the stock market).

For day trading stocks, the stock market officially opens at 9:30 AM EST. Sometimes there are opportunities in the hour before that, but most of the action is between 9:30 AM and 11:30 AM EST. Lunch hour is typically a low probability time to day trade, but then there are opportunities again between 1:30 PM and 4 PM EST.

If you are going to day trade, make a legitimate go at it and sit down to actually trade for a couple hours with total focus. Trading on a smartphone or tablet while at another job, or doing something else, is not recommended. Pick a time you can trade, and then pick a market where your interests and available capital align.

Day Trading Instruments

For simplicity, when starting out, focus on only trading one asset at a time in the market of your choosing.

For example, if you choose to trade forex, I recommend day trading only the EURUSD. The GBPUSD is also a viable choice. These are both highly liquid (lots of volume) currency pairs that offer enough movement for day trading. Also, the spreads are typically the smallest in these pairs, compared to other currency pairs. The GBPUSD usually moves a bit more per day, and may have a slightly larger spread than the EURUSD. Pick one pair and stick to trading that one pair every day.

If opt to day trade futures, I recommend starting with the S&P 500 E-mini (ES). Watch it move, practice trading it, and focus on trading just this one contract.

If you want to trade stocks, there are many choices, simply because there are so many stocks. Pick one stock you will day trade every day. It should have lots of intraday movement and lots of volume. There are several ways to assess this. You can look for stocks that move at least a few percent each day, on average, or you can look for stocks that move more than a certain dollar amount (in terms of stock price) in a day, on average. You can also simply pick a stock or ETF, like the SPDR S&P 500 ETF (SPY), which has loads of volume and enough movement for making day trades.

The Day Trading Stocks Picks page provides some guidance on finding different types of stocks. I find one stock I like and then trade only that stock for extended periods of time. If over time the stock stops moving how I like, I find another and then only trade it for an extended period of time.

Which Market to Day Trade: Summary Comparison

Day Trading Resources

With more information on what the various markets require of you, and what to trade in each market, your next goal is to learn more about your selected market. First, learn the basics of how it operates and the fees associated with trading. Look into strategies, and developing a trading plan that lays out exactly when you will enter and exit trades, how you will manage risk, and at what times of the day you will trade. Open a demo account and start practicing what you have learned. You should be profitable in a demo account for at least a couple months before risking real capital in a live trading account.

If you are interested in day trading forex, check out my Forex Strategies Guide for Day and Swing Traders eBook. It contains all the basics you need to know about trading currencies, as well as a plan to follow and lots of strategies.  You can also check out Forex Basics and Forex Strategies.

If you are interested in trading futures, there are additional articles in the Futures section. If you are looking for more personalized guidance on trading the S&P 500, I like the DTA program which offers mentoring.