An outsider’s romanticized view of day trading might look something like this: Poised in front of his computer, the experienced day trader makes heart-stopping trades worth millions of dollars and rides a daily emotional high every hour, on the hour.
Most of the time, it’s not like that at all.
Quick look – Best Day Trading Platforms
- Best Overall – Interactive Brokers
- Best for low cost – Ally Invest
- Best for customer service – TD Ameritrade
- Best for futures – TradeStation
Conversely, an outsider might picture the “bad” side of trading: The trader makes one wrong trade and loses every penny of his life savings.
- How do you begin trading?
- What will you be trading?
- Identify a broker that meets your requirements
- Low costs
- Trading platform and tools
- Pattern-day trading rule
- Customer service
- Do you need leverage?
- Safety and reputation
- Best overall
- Best for day trading futures
- Best for day trading options
- Best for low margin rates
- Best platform and research tools
- Best value/lowest fees
- Best for execution
- Best for customer service
Day trading does involve knee-jerk reactions in some unpredictable, tumultuous situations, and day traders do respond to significant market events and results.
However, in either case, bad or good, a good day trader will only risk one or two percent of his or her account balance on each trade, and will carefully research strategies beforehand, making it a fairly predictable execution process.
How do you begin trading?
Day traders arguably have the hardest job in the world, but it can also be the most rewarding.
The most important factor for new day traders to know that it’s important to practice for months ahead of time.
Learning to control risk and practicing strategies over and over are two of the most important aspects of learning how to day trade. Realistically, as long as you find one strategy that works (and the trading pattern that accompanies it) you’ll be able to start paper trading–and eventually move yourself up to using real money.
Also, day traders don’t trade all day–and in fact, only trade two to three hours a day, which offers a lot more consistency than trading all day long.
To become a successful day trader, you’ll also need a few tools, including a computer with a quick internet connection, a trading platform, and a broker.
What will you be trading?
In order to pick the best broker for you, it’s vitally important to determine what type of financial instrument you’ll choose to trade. Most people assume that day traders trade only stocks—but the possibilities can also include trading futures or forex, options, derivatives or currencies.
Day traders should pick one—and master that type of market before moving on to others.
Identify a broker that meets your requirements
Once you’ve determined what you’re trading, it’s likely pretty obvious what you’re looking for in a broker: excellent research options, low costs and a platform that looks like the dashboard of a space shuttle (as in, it’s really excellent).
Day traders must be able to piece together any and all data that influences the securities they trade. Therefore, the speculative nature of day trading requires excellent research tools. Technical and fundamental research are the backbone of any trader’s craft, and the broker a day trader chooses must have excellent research capabilities.
Commissions, margin rates and other expenses could easily eat up any day trader’s profits, as commission costs can certainly reach into the hundreds or even thousands of dollars for high volume traders. Therefore, cost is a major factor when choosing a broker.
Trading platform and tools
It’s tough to gauge the single best type of charting tool or best software for day traders. The options are staggering—varying markets, trading strategies and software features—the list goes on and on. That’s why, if you ask ten different traders which trading software they like best, you’re liable to get ten different answers.
For high-frequency traders, execution speed with real-time execution is a must. Any second’s delay could eat into traders’ profits, so the chosen broker absolutely must have a top-notch trading platform that is relatively easy to use.
For brand-new traders trying to break into the field, it might be worth it to find out if a broker has paper trading—so you can first practice trading without using your own money. Some traders disagree with that approach, but if you’re nervous to start, it’s a good way to get your feet wet.
Pattern-day trading rule
The SEC has implemented the pattern-day trading rule to address intra-day risks associated with day trading. Whether traders agree with the requirement or not, it’s supposed to protect inexperienced traders from losses.
FINRA’s definition of a pattern-day trader is “any customer who executes four or more day trades within five business days, provided the number of day trades is more than 6% of the total trades in the account during that period.”
All pattern-day traders must have a margin account and are required to maintain $25,000 equity in order to continue trading. If a trader’s account falls below $25,000, an equity call is issued and the minimum must be restored by cash deposit or other marginable equities.
If the day trading call isn’t met within five business days, the account’s day trading buying power is restricted for 90 days or until the margin call is met.
Day traders might just overlook this piece of the puzzle. In an endless search for fast executions, the lowest commissions and knock-your-socks-off platforms, it might be possible to ignore the human element of the equation.
Here’s a scenario: What happens when you’re in the middle of a trade and something shorts out on your trading platform? Boy, you’d better have that broker on speed-dial. And someone helpful on the end had better answer.
Customer service shouldn’t be ignored—and experienced day traders know the value of great customer service within the firm they’re using.
Do you need leverage?
Trading without margin? Um, where’s the fun in that? (Risk-takers, it’s your daily refrain, huh?)
For beginning students in the art of day trading, it’s a really good idea to abstain from trading on margin until you’re comfortable with day trading in general. (Debt is a four-letter word, whether it’s mortgage debt or margin.)
Brokers don’t allow you to trade on margin for free—and most charge high interest rates for borrowing their money. If you’re working with a broker who charges 9% for margin, it’s time to look for another broker with a lower margin rate.
Safety and reputation
Brokers are usually falling all over themselves to attract day traders to their business—after all, frequent trading by you means commissions for them.
It’s very likely that you could fall for a broker because of its cheap commissions, but be sure that the firm you’re looking into is regulated by an agency with key metrics they are required to follow. It’s also an excellent idea to ask questions about security, years in business and the stability of the broker. It might not be the best idea, for example, to choose a brand-new broker based solely on bonus offers they’re touting.
Every broker has to market its products, and the dizzying array of options can be difficult for a new day trader to sift through. Benzinga has chosen to take the guesswork out of the process so you can choose the best option for you.
- Excellent platform and lightning-fast executions
- Lowest margin rates in the industry
- Lowest commissions in the industry
There’s no question: Interactive Brokers has set some industry standards.
Interactive Brokers’ low margin rates and top-notch trading platform are second to none. Low commissions, especially for high-volume traders, and low margin rates are all geared toward active and even hyperactive traders.
IB offers the following, and recently began requiring assets of $10 million or more for leveraged Forex positions. Interactive Brokers also made Benzinga’s list of Best Online Brokers for Futures Trading.
- Futures options
- Structured products
- Single stock futures
- Precious metals
- Mutual funds
For a more comprehensive overview of Interactive Brokers, read Benzinga’s review.
Best for day trading futures
- Offers over 80 futures products
- TradeStation offers two pricing schedules for single-tier and multi-tiered plans
- Account minimums start at $5,000
- Offers a comprehensive desktop platform where stocks, options and futures can be traded together.
TradeStation deserves traders’ attention for several reasons. First of all, TradeStation offers two pricing schedules. In a single-tier account, contracts are $1.50 each. In the multi-tiered plan, commissions are lower (especially for high-volume traders) and follows this pattern:
Less than 300 contracts: $1.20 fee
301-1,000 contracts: $1.00
1,001-10,000 contracts: $0.65
10,001-20,000 contracts: $0.45
20,000 contracts: $0.25
For more information, read Benzinga’s TradeStation review.
Best for day trading options
- Trader Workstation provides a comprehensive list of options trading features
- Helps active traders minimize commissions and fees
The workstation includes integrated tools such as IB Risk Navigator, Options Analytics and Model Navigator. It has a configurable format, quick-click order entry capabilities, and is extremely customizable. The OptionTrader Combo tab allows traders to monitor price variations, view all available chains or filter for specific contracts and configure columns to view calculated model prices, implied volatilities open interest and Greeks.
Interactive brokers charges only 70 cents per contract with a minimum of $1 per order. However, it also offers volume-tiered pricing that varies as low as 25 cents per contract in the U.S. Interactive Brokers was named the lowest-cost broker for frequent traders in Barron’s with an average monthly cost of just $847 compared to nearly $3,000 per month for E-Trade and TD Ameritrade.
Best for low margin rates
- Offers the lowest margin rates in the industry
Interactive Brokers touts the absolute lowest margin rates in the industry, with margin rates dipping to 2.66% for margin amounts anywhere from $0 to $100,000 and a staggering 1.41% for amounts $3,000,000 to $200,000,000.
For comparison’s sake, Vanguard has the second-lowest margin rate at $7.75% for $0 – $4,999. That’s a far cry from Interactive Brokers’ low margin rates.
Best platform and research tools
- TradeStation’s desktop platform can offer power, speed and flexibility
- Software tools are some of the best in the industry
Dynamic market-scanning tools, fully customizable charting, lightning-fast trade execution, advanced order management and fully automated strategy trading are all rolled up in a neat little bundle with TradeStation.
TradeStation’s software tools include TradeStation Trading Platform, which comes free with $5/trade equities or $1.50 single-tier futures brokerage account. It’s also free for brokerage accounts on other equities or futures commission plans if the account meets minimum activity. Otherwise, a $99.95/month fee is charged.
RadarScreen, a real time market monitoring tool, and Portfolio Maestro, a portfolio level strategy back-testing tool, come free for brokerage account holders, while non-account holders are charged $59.95 per month.
Best value/lowest fees
- Among the lowest fees in the industry
- Offers volume discounts
- Excellent customer service
If investors are on the hunt for a bargain broker, check out Ally Invest. With low commissions across the board, Ally Invest (formerly TradeKing) stops potential investors in their tracks with its especially low mutual fund commissions. Commissions on stocks and ETFs are notoriously inexpensive as well, and for more active traders or those with larger account balances, commissions can dip as low as $3.95 per trade.
For a more comprehensive overview of Ally Invest, read Benzinga’s review.
Best for execution
- Good for really active traders
- Platforms built for speed and fast executions
- Multiple platform options
For professional traders, every second counts—and Lightspeed (aptly named) fulfills its promise with lightning-fast executions. With perfect fills every time, delays are virtually nonexistent. For traders who require that (and don’t mind a messy platform) Lightspeed Trading will make them more than happy.
Best for customer service
- Customer support across all asset classes
- 24-hour phone support
- Email support 24/7
- Branch support at 100+ branches nationwide
TD Ameritrade has all the bases covered, from entry-level traders looking for stocks and ETFs to the advanced traders looking to implement advanced options and futures strategies. TD Ameritrade offers stocks, bonds, mutual funds, ETFs, options, futures and forex trading.
TD Ameritrade provides free research on many of these assets and provides exceptional customer support for traders across the board, in any type of asset class.
Check out Benzinga’s TD Ameritrade review.