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What to consider when choosing an instrument
Started: by Grantx Views / Replies:197 / 5
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What to consider when choosing an instrument

  #1 (permalink)
I know nothing
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What to consider when choosing an instrument

There are so many different instruments available with futures and each comes with certain information that must be known in order to trade an effective strategy. The following is what I think is needed:

Value of each contract
Margin requirement
Instrument expiry date
All in cost of a single trade (broker fees etc)

And then there are the things I don't know about yet, but that I need to know when choosing an instrument. Can you point out any other obvious things I need to be aware of? Also..would I get the above information from my broker?

Many thanks.

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  #3 (permalink)
Market Wizard
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Grantx View Post
There are so many different instruments available with futures and each comes with certain information that must be known in order to trade an effective strategy. The following is what I think is needed:

Value of each contract
Depends on what you mean by 'value'. Is it the tick value? Yes very important factor for me. Contract value, as in notional value for each product? Not so much if you trade for speculation (to make money)
Margin requirement
Yep
Instrument expiry date
That's required if you hold your positions overnight. Also required when you just day trade for platforms such as NinjaTrader. On some other platform types if you day-trade it's not so much an issue as you are rolled over to the most active contract automatically
All in cost of a single trade (broker fees etc)
Yep
And then there are the things I don't know about yet, but that I need to know when choosing an instrument. Can you point out any other obvious things I need to be aware of? Also..would I get the above information from my broker?
Yes the broker will help with most of that.

The other thing is you would need to familiarise yourself with which product suits your style better. There are products that are very volatile (move very fast) and others that are very slow. If you have watched most Jigsaw videos as you said you would by now you should have an appreciation of the concept of volatility Vs. liquidity


There can be other aspects but initially who's starting is expected to trade in simulation only. That's a good starting point, and more questions become apparent when one has had a few dozen hours in front of the screen
Many thanks.

See above

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  #4 (permalink)
 Vendor: www.orderflowdashpro.com 
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For day trading, you want to look at the daily trading range in terms of dollars. You also want to look at the liquidity. The instruments with the largest dollar ranges and the highest liquidity will be best candidates for day trading. You can create an indicator to do this, simply multiply the Range or High-Low*Point Value to create a histogram. The liquidity will help you determine the risk. An instrument with a large range but gaps will be more risky. The best instrument will thus be highest dollar range that trades smoothly.

On the other hand, you might want an instrument with a smaller range if you have a smaller account to reduce the risk.

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  #5 (permalink)
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xplorer View Post
See above

Thanks Xplorer. I think I will be sticking to day trading, I really dont like the idea of leaving trades open overnight.
I am busy going through some of the instruments to see what suits me best. I think the most important thing right now is something liquid that wont gap past my stop. So far NQ is looking pretty good, I quite like the way it moves.
I haven't been through all the jigsaw videos ... thanks for reminding me, Ill spend time tomorrow on that.

Thanks for all your help so far

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  #6 (permalink)
Trading Apprentice
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Liquidity, as represented by relative volume, is probably the most important aspect. Low liquidity leads to nasty slippage. But if you really know what you're doing, low liquidity can sometimes work in your favor.

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