Before even deciding on a trading methodology, a trader must first decide which asset class they want to trade. Some traders like to speculate on anything that moves, but more often than not, they specialize in a specific asset class—even an individual instrument. Limiting yourself to trading just a single asset class is not only a good idea for beginners, but professional traders alike.

This short guide will hopefully help you to weigh the pros and cons of the three asset classes that can be traded via Bookmap, and decide which is best for you. You can read right through, or skip ahead to the section you would like to know more about.

Jump to:

• Stocks
• Futures
• Crypto

Stocks

Stocks are often the first thing new traders think of when they think of financial markets. It can feel more comfortable trading what they already know in the real world, especially if they are consumers of those companies’ products. It’s a lot easier to understand what Netflix is when you watch it every night, but the same can’t be said for crude oil futures or bitcoin.

When comparing the stock market to the futures market, there is much more to trade, with countless small caps as well as the more famous large cap stocks. This vast universe of instruments allows for more precise filtering, which is perfect for pro traders like Jtrader who scans for very volatile stocks at the beginning of each trading session, drilling down into the most interesting movements and looking for his specific setups. You can read more about Joseph in our interview with him here, or join him on Wednesday’s for the advanced trading webinar (available for Global/Global+ users).

Exchanges & Liquidity

This greater choice can have some downsides, however. There aren’t just more stocks, but also more exchanges. Some of the same stocks even trade on multiple different ECNs and exchanges and/or dark pools. This means that it can be more difficult to know how much liquidity is really behind any price. Luckily, Bookmap has you covered, offering what is known as the National Best Bid and Offer (NBBO) via Dxfeed. This gives you the total volume (first level) and allows you to view the behavior of the spread over time. You can read more about this in our blog article.

Speaking of liquidity, trading certain stocks can sometimes carry greater risk. Since there are so many stocks, traders and market makers can be spread thin across all instruments, resulting in greater illiquidity of some stocks, especially the micro caps. This not only means wider spreads (and increased costs when executing market orders), but also an increased risk of slippage. This is when the market can’t handle the current amount of aggressive orders demanding the next best price, so the stock order book changes, resulting in a much worse price for those orders. This is exactly what Bookmap is designed to help you avoid, with various visualization tools showing you true order flow, and just how deep the liquidity really is. If a stock is illiquid, it is unlikely to be able to handle breaking news without resulting in a big move, for instance, and if you’re caught on the wrong side, it could be more damaging for your account than your initial risk:reward calculations anticipated. 

Another risk is what is known as overnight risk. Most futures instruments trade 23 hours a day, 5 days a week (closing on the weekends), with only crypto being a true 24/7 market. But some stocks only trade during day hours, while others also trade overnight. If you are holding a position in stocks when the market is closed and some impactful news is released, then the stock can potentially gap on opening, even trading past any stop loss you had set and resulting in a bigger loss than you anticipated. Shorting also poses similar risks, since shares prices can theoretically go to infinity, whereas the lowest price a share can trade at is 0.

This doesn’t mean there aren’t profitable opportunities to be found trading stocks—of course there are. In some cases, the edge may be larger because there are more stocks, and the mispricing may have gone unnoticed by the other professional traders. There is also the fact that nice, trending moves tend to happen at set times, usually at the market open. Some traders have even made it their specialty to exclusively trade the market open, being able to trade for a couple of hours and be finished before lunchtime.

Choosing a Broker

Perhaps the risk of shorting stocks will be eliminated depending on your choice of broker. Of course, this is a negative for traders who want absolute control over trading every setup that comes their way. Either way, it’s worth noting that some brokers only permit cash accounts with no margin, and therefore shorting is not allowed. Depending on your particular goals, this could reduce the choice of brokers available. 

It should also be noted that there are a lot of brokers offering free trading. However, free often means you are the product, and these kinds of brokers make their money from selling your order flow to market makers. Depending on your trading goals, it may be much better to transact via a broker with DMA (Direct Market Access). This way, you can be sure there is no middle man hiding between you and your trades. Of course, it all comes down to your particular goals and the cost you’d rather pay: commissions or worse order execution.

Other Costs

Other things to consider when it comes to trading stocks are the rules and regulations specific to this market. For instance, pattern day trading rules for U.S stocks require a minimum account balance of 25,000 USD. There are also more nuanced differences in long vs. short-term capital gains when it comes to taxation for trading shares (as opposed to other markets) in most countries. Of course, this is quite a complex subject and the rules are different everywhere, so it’s best to seek specialist advice.

When it comes to trading stocks with Bookmap, all that is required is to connect to a market data provider via your broker/exchange or purchase a data subscription. The subscription we recommend is DXFeed, which starts at $59 per month (see the full pricing list here).

Futures

Futures are derivatives instruments that were originally created for farmers to insure against their crops. Nowadays they are often traded as speculative instruments, since they offer various products with unique order flow characteristics at a low cost. For example, a contract that is highly correlated with the weather or geopolitics (e.g. natural gas or crude oil) can have huge swings due to unpredictable events. Whereas markets like short term interest rates typically have tighter ranges, and move much slower.

With the advent of micro contracts like the recently introduced micro crude oil futures, trading futures is realistic for even the smallest retail trader account. Trading micros means you have greater control over your position sizing, so you can make sure you are always trading not too big to be taking too much risk, and not too small to be passing up any profit opportunities. 

Trading futures also gives you the possibility to view Market by Order, a unique data feed provided by the CME (Chicago Mercantile Exchange). This allows traders to view the full depth of the book, the size of individual orders, as well as their position in the queue. With this extra information, Bookmap traders can dive deeper into the market with Bookmap’s MBO order flow indicators: a suite of tools that allow for precisely identifying where stops or iceberg orders were transacted, amongst other insights. You can join Scott Pulcini—a trader that really knows how to take full advantage of the MBO Bundle—at the pro webinars on Thursdays, and watch him trade the markets with this suite of order flow indicators live.

Exchanges & Liquidity

Unlike stocks, futures products trade on only one exchange at a time. No need to worry about how much liquidity is hidden: the price you see is the price you get. There are also products based on the same instruments only at smaller notional values, known as the minis and micros. Whereas the stock market has small cap companies that a less capitalised trader can still buy and sell, some of the large caps might be out of range for a smaller account, and thus result in missed trading opportunities.  

The futures markets don’t have that problem, and if you trade such instruments with Bookmap through Fairx, you pay ZERO exchange fees, ZERO market data costs, and ZERO broker commissions. Even your Bookmap subscription is free.

Futures products are based on the demand of interest in taking a position. Whereas the availability of shares is based on the amount of outstanding shares in circulation, futures instruments are derivatives, and they can be created as long as there is both a buyer and a seller.

Since futures are derivatives products which often include a lot of leverage, they can often be heavily influenced by economic events, even the scheduled ones. This can be both a plus and a minus, depending on your particular trading approach. Some traders exclusively trade large events, finding the volatility provides more opportunity for alpha generation. For others, this might be a time to avoid taking positions, perhaps even going as far to close existing positions. The good thing about this, however, is that since the futures market is a mature asset class, most of these events are visible on the economic events calendar and can be anticipated ahead of time.

Choosing a Broker and Costs

Not only do different brokers have different fees and commissions structures, but they also offer different levels of leverage, some offering up to 90%. This means a trader can take a position with only 10% of the actual value of the contract upfront. Like a lot of points in this article, this can be both a positive or a negative, depending on your trading approach and goals. Putting less capital into any particular trade means you can spread your portfolio across more ideas. But you need to keep an eye on margin and understand your broker’s margin call calculations inside out. It’s usually recommended that beginner traders stick to lower levels of leverage starting out, as too much leverage can easily lead to blow up for a trader taking positions too large for their account.

To trade futures via Bookmap, you need Rithmic, which starts from $39 per month (see full pricing list here). With the CME’s unique MBO dataset, you can unlock the true power of order flow analysis with the MBO bundle of addons. This is what pro trader Scott Pulcini (mentioned earlier) uses for his trading. You can see some examples of how Scott leverages Bookmap and its addons to trade futures in a collection of his Tweets here.

Crypto

Despite being over 12 years old, crypto is the newest kid on the financial markets block. Because of the lack of international regulation and general speculative nature of the market, cryptocurrencies tend to be very volatile. For some traders, this is the perfect place to seek alpha. 

Unlike stocks (and most futures products), cryptocurrencies and tokens trade 24 hours a day, 7 days a week. This is perfect if you have other responsibilities and can only make trades at certain times. The global nature of the market means there will always be order flow, no matter the time or place. 

There are also various tokens and even “memecoins”, all which offer different fundamental drivers of price. Since this market is quite new, some traders feel there is more opportunity for profit, as the professionals are still yet to master this quickly changing market.

Exchanges & Liquidity

Cryptocurrencies trade as derivatives as well as on the spot market. Traders usually speculate on the futures products, since they only care about price fluctuations and not about owning the coin outright to gain any voting or staking rights related to that particular coin.

The true global nature of this market (with major exchanges on every part of the world trading 24/7) means there are a lot of related instruments, even for the same pair. With Bookmap’s new Multibook addon, traders can see all this order flow across exchanges in a single chart. 

Things like absorption of cross-exchange arbitrage are easier to spot with Multibook, because of the global view you gain. For a great read on trading with Multibook, have a look at this article.

Another thing to bear in mind if you are trading cryptocurrency futures is what is known as the funding rate. Since these are leveraged-based products, perpetual futures are impacted by the interest rate for borrowing the particular coin. This can sometimes mean it is more expensive to go long or short, depending on which way the market is leaning at the time. This data can also be used as a sentiment indicator, with very high or low borrowing costs potentially signalling a turning point in the market.

Choosing an Exchange

Most crypto exchanges offer everything from the data feed to the platform for free, but this means that often the fees for taking liquidity are higher than in the traditional futures markets. That being said, some exchanges offer 0 fees or even a small rebate for adding liquidity (in the form of LIMIT orders). 

It should be noted that crypto exchanges are not regulated in the same way that stocks and futures exchanges are. This increases the risk of fraud and capital being lost. A related point is that the nature of blockchain essentially makes any exchange one big cryptocurrency wallet. One of the original selling points of cryptocurrencies is that you can take full control of your capital at a very low cost. But once you transfer them to an exchange, they are not your coins anymore, and thus have a much higher risk of being lost to hackers. There have been a lot of hacks in the past, but most of the bigger exchanges keep a large portion of their funds in cold storage. Before choosing to deposit your cryptocurrency on any exchange, it is important to find out what measures they use to keep your crypto capital safe.

Bookmap is free for up to 1 crypto instrument. To see a full list of supported exchanges, click here and look under Crypto connectivity. 

Bringing It All Together

Seeking an edge in day trading/swing trading is the end goal, and Bookmap with its suite of advanced tools can help serious traders with understanding order flow. The two pro traders mentioned in this article showcase that. 

But just like how JTrader only trades stocks, whereas Scott Pulcini focuses on futures, choosing an asset class to trade should fit you and your personality. It depends on an array of factors, such as your schedule, risk tolerance, overall goals in trading, and the size of your capital. If you are new to trading, the best idea is to start slow as you get familiar with your platform and develop a trading strategy. Crypto may be the right choice if you are working full time, since the market is open 24/7 and you can trade whenever fits you. Or perhaps you have more time and prefer a bit less volatility, so you can look into trading one of the more liquid traditional futures contracts. It is also a good idea to stick to a single asset class at first, perhaps even to only one instrument until you master it. You should only expand your universe of instruments and/or your position sizing as you feel more comfortable. 

Bookmap’s Replay mode (simulated trading) is a useful tool for practising or reviewing trades. As well as the webinars, you can also join Bookmap’s community on the forum or Discord trading chat room, where 3,000 (and counting) traders discuss markets and learn from each other on a daily basis.