2 - Choice of instrument

Once your initial idea is determined, you then need to determine the financial instruments on which you want to test your strategy. This section may give you some ideas which could be taken into account when making your choice.

Liquidity: is the instrument you want to choose liquid enough that your trading system will be able to close a position at any time in good conditions?

Trading hours: do you want your strategy to be able to take positions at night and as a result use instruments which quote 24 hours per day during the week?

Opening gap: the more limited trading hours a market has (ex: from 9:00 to 17:35), the greater the risk of an open the following day with a significant gap between the previous closing price and the new opening price. To limit this risk, it is possible to invest in markets that quote 24 hours per day or markets with more limited closing times (ex: from 23:00 to 8:00). To avoid the risk of an opening gap, you could also plan to close any open position at least 15 minutes before the market closes.

Required margin: make sure you have enough required margin to cover the position(s) of your trading system(s) plus losses which may occur (see margin examples in the table below).

Minimum gain to make: certain trading systems may rely on taking frequent positions for a short time with the goal of making small gains. If using a system like this, it might be interesting to use an instrument for which the ratio of "Execution cost" (taking into account the spread and brokerage fees) to "Value of the instrument" is low.