Newbies Only Part 4 by Trade Aptitude

Happy New Year! The next several blogs are part of a multi-part process to tune up your trading plan for the coming year.

Yesterday you determined your starting and subsequent risk capital contributions. Along with your prior choice of time horizon (day, swing, or position) you’re ready to find the perfect asset to trade. 

Best choices… 

Position Traders: Stocks (high capital requirement) and Forex (low capital).

Swing Traders: Stocks (moderate capital), options, Forex, and futures (all low capital).

Day Traders: Stocks (moderate capital), options, and futures (low capital). 

You can now see that finding the market you’re best suited for is a combination of your time commitment and your risk capital. 

You’ll also notice that trading stocks require more capital. The reason is leverage, or lack thereof. Disciplined use of leverage is critical for trading success. 

The stock market offers you 2:1 leverage, and you’ll pay interest on the borrowed amount. Not as attractive as options, Forex, and futures which offer significantly more leverage with no interest charge. 

Here’s an example: If you’re buying a position of 100 shares of Apple at $243 today your choices are a  cash purchase of $24,300, a margin purchase of $12,150 (plus interest) or a one-year LEAP option purchase of $2,830. Your percentage return on the option selection blows away the other choices and frees up more of your capital for other trades. 

For day traders the leverage becomes even more important. A popular day trade is the “stock market” using the S&P 500 index. You could trade the ETF, ticker SPY, but at $585 per share you’d need considerable capital even though day trading margin offers 4:1 leverage. 100 shares of SPY require a margin of $14,625. Using options or futures you can reduce that to less than $200!

Obviously, you will not choose your trading asset based on just this information. It’s intended to point you to the market that you need to get trained in. They each have their own unique “personalities.” 

Tomorrow we’ll dive into strategies. These are the rules that you’ll follow to become a winning trader.

Our trading teams focus on multiple strategies for day trading futures and high-probability candidates for swing trading options. You can learn either or both risk-free. Join us.

To your trading success,

Mike Siewruk

PS: Feel free to forward this invitation to your trading buddies. Share in the wealth!