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Trading equities rather than individual stocks has its own benefits—especially when it comes to day trading, where trades are made on an intra-day basis.

The most important advantage of trading equities is that trading the market equivalents, such as ETFs or even the equity futures, allows traders the advantage of liquidity as well as trading the benchmark index as compared to spending time on picking the right stocks.

One of the common problems faced by day traders is knowing what markets to trade. Because positions are often kept open only during the day, it's essential that the markets in focus should be liquid yet volatile in order to allow the day trader to make some meaningful trades that will increase their trading capital.

To succeed in day trading, it's important to focus more on trading the markets rather than spending time on research. The more time a day trader spends researching and scanning the markets, the less time they have to allocate to trading.

Approaching the markets, especially for those who are unfamiliar with them, can result in losses—due to either unaccounted factors or the lack of liquidity and the conditions behind the markets.

Thus, the less they trade, the lower the day trading returns can be. As you can see, it's a vicious circle and day traders who want to make reasonable gains from their day trading journey need to have a set of markets that they can rely on.

Of course, no financial asset or market is volatile and liquid all the time. Still, day traders need to look for a set of markets that they can fall back on, and be able to easily switch from one market to another.

What are the benefits of having a watch list?

Most professional traders have a number of assets in their watch list that they keep an eye on. The financial instruments that make it to the watch list are the ones where the fundamentals are already studied and the trader is merely waiting for a technical trigger.

Likewise, for day traders, having a set of equities markets in their watch list can save time on studying the markets. An important factor here is that most of the equity markets tend to behave similarly.

Let's take the example of the Brexit event in June. The news of the leave camp's win sent the markets into chaos, and this uncertainty saw investors across the world react to the markets.

For example, the Nikkei 2225 index fell on the news even though Japan had nothing to do with Brexit and the UK didn't rank high on Japan's list of trade partners.

The chart below shows some of the major global equities (S&P500, Dow Jones, Nikkei 225 and the London FTSE100 index futures) and how they reacted to the news.

Equity markets reaction to Brexit (ES, YM, NY and FT) Futures

Equity markets' reaction to Brexit (ES, YM, NY and FT) Futures

The above chart shows that equity markets tend to behave similarly. The reason for this is simply because of investors' appetite for risk and the search for markets with high returns.

Thus, in most cases, when investors are bullish on the markets, they are willing to take on more risk. This translates to higher returns from the stock markets. However, during times of uncertainty (whether economic or political), investors tone down their bullish expectations.

This translates to a slump in the stock markets.

As you can see, day traders who trade equity markets—be it via futures or ETFs—have a specific advantage over their peers. While this might be the case, day traders should note that not all equity markets are ideal to trade.

The best way in which one can ascertain what equity markets to trade is to look at the volume.

Why does volume matter for day traders?

Trading volume is an important parameter in trading. The volume measures the amount of transactions (buying and selling) that is being done on the asset in question. Thus, trading volume reflects the amount of shares or contracts that are being traded on the asset for the given period of time.

Typically, the time frame used to assess trading volume is a day. Thus, daily trading volumes make for an important aspect to determine the amount of activity in the asset.

Simply put, when there is high interest in a financial asset, the trading volume is of course high. If the trading volume is low for an asset, then the instrument is not traded that actively.

Along with volume, liquidity is also an important aspect to remember. Liquidity tells you how easy it is to buy or sell an asset without affecting the price of the asset.

For day traders, liquidity and volume matters a lot. After all, you do not want to end up trading an ETF or a futures asset with low volume and low liquidity. For an asset or a financial instrument to be liquid, it needs to have high trading volume.

This ensures that no matter what, the trading volume can absorb the impact of the buying and selling power.

Thus, the more liquid a stock or an asset is, the better the chances that the day traders can make reasonable gains, even if it means scalping the markets for just a few ticks or points.

The Top 7 Equities Markets for Day Traders

There may be many different ways in which one can determine the best equity markets for day trading. Here, we see some of the top equity futures based on volume, available from the CME Group’s futures trading exchange.

CME Futures – Equity Index Futures

CME Futures – Equity Index Futures

Among the various equity futures that are available for trading, it is clear that the E-mini S&P500 futures trumps all other futures markets. Boasting of the highest trading volume on average on a daily basis, the E-mini S&P500 futures is no doubt the biggest and the largest equity index futures to trade.

Coming in next includes the E-mini NASDAQ and the Dow futures and the list includes the E-mini financial select sector futures as well.

The above list is not set in stone as this can change from one market to another.

When looking at ETFs for example, you can expect to see a completely different list. This is because volume differs based on the ETFs and at times you can find two or more ETFs that track the same underlying asset or the markets.

For example, in the ETF world, two of the top seven ETFs are known track the S&P500 index market returns. Thus, the results can vary from one type of market to another. Furthermore, there are additional criteria such as the expense ratio that plays a role in determining what ETFs are preferred.

Why should day traders avoid low volume markets?

Traders will face a lot of problems when they focus on the markets and financial instruments with low volumes. While there are a number of reasons, here are a few most important factors on why day traders should avoid the low volume markets.

  • Price quotes are often very choppy
  • Due to low liquidity, the spread (difference between the bid and ask prices) can be quite high
  • Exiting a trade from a low liquid market can be very difficult and can happen often at a loss
  • Low trading volumes makes it easy to manipulate the stock price with a large order
  • Trading volumes and liquidity are not uniform and changes during the day
  • Trading the markets for a few points can be extremely difficult

An important point to remember when trading ETF’s is that the above logic doesn’t hold.

The general concept of trading volume and liquidity is that when an asset is traded highly, it indicates higher trading volumes. Thus, by applying this yardstick, one can easily mistake ETFs with low trading volumes as being illiquid.

This isn’t the case with ETFs because liquidity matters for the assets that are being held with the ETF and not the trading volume of the ETF itself.

For example, an ETF can have very low trading volume, but if the assets that the ETF holds (let’s say 5 stocks) are very liquid, then such ETFs can be traded.

What are the factors to consider when day trading equities markets?

When attempting to day trade equities, day traders should focus on a number of factors besides just the trading volumes and liquidity factors. Of course, these two parameters should be the foremost in narrowing down the list of equities.

Example ES futures contracts – Technical trading

Example ES futures contracts – Technical trading

Assuming that you have your own list of equities for day trading, here are a few things to bear in mind.

  • Trading commissions and fees: The commissions and fees can vary from one type of market to another. While there are different variations of the same underlying asset, the fees can greatly differ. This is something that day traders need to remember when choosing to day trade equities
  • Spreads: The spreads can play an important role when it comes to day trading. Although by default, the spreads on the select list of equities is expected to be small, day traders should pay attention nonetheless. Ideally, day traders should focus more on the instruments with lower spreads
  • Technical aspects: The technical aspects of the trading instruments are also something to focus on. Some equities are known to be more technically oriented than others. For example, the E-mini S&P500 futures is well known futures equity index that can be traded with technical indicators.
  • Market timings: When trading international equity indexes, traders should focus on the timing as well. For example, day trading a foreign equity index during the offline market hours in that region could influence both liquidity and trading volumes. Thus, day traders should bear this aspect in mind, especially when looking at the foreign equity indexes.

At the end of the day, it is all about how familiar a day trader can be with their trading instruments, and in this context the equity indexes. Day traders should let their analysis and judgment be influenced by peer pressure or other factors but instead focus on building familiarity with the instrument in question.

What are the tip 7 stock exchanges by market capitalization?

It is estimated that there are over 60 stock exchanges across the world, with a combined valuation of over $70 trillion. However out of this list, only 16 make it to the trillion dollar club which is an exclusive group of stock exchanges that boast of a total market capitalization of over $1 trillion.

Top 7 stock exchanges by market cap

Top 7 stock exchanges by market cap

These 16 exchanges make up for nearly 87% of the total global market capitalization. When it comes to choosing what equity indexes to trade, day traders should focus on factors such as the trading volume and liquidity. Besides these factors, day traders should also take into account the additional fees and charges.

Not all trading instruments are charged similarly and the trading fees and commissions can eat into a significant part of the trading capital. However, the average day trader today has a choice to choose from a wide range of financial markets, from the ETFs to the derivatives versions of trading.

Thus, by focusing on a select list of equity index instruments and picking the right assets or the markets to trade based on factors such as the respective liquidity and volumes and the trading fees and commissions, day traders can look at building a successful watch list or a set of equity indexes that they can readily trade.

To be successful in day trading it is all about building familiarity with the assets and therefore traders should focus on having a select list of financial instruments that they can rely on especially when it comes to building consistency in their trading activities.

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