How to Day Trade

Melissa Brock

Contributor, Benzinga

June 13, 2019 Updated: June 24, 2020

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If you’ve dubbed yourself a brand-new day trader and want to know how to start day trading, congratulations! You’ve just entered into a partnership with the unruly animal known as the stock market. However, unmatched risk can offer great rewards.

Learning to control risk and practicing strategies over and over are two of the most important aspects of learning how to day trade. It’s vitally important to practice for months ahead of time.

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 graduate to earning real money. Just know that when you’re just getting started, it could be six months to a year before you actually turn a profit.

To become a successful day trader, you’ll also need a few tools, including a trading platform on a quick internet speed and a broker—not to mention a concrete plan, too.

Step 1: Decide What You Will 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.

Beginning day traders should pick one—and master that type of market before moving on to others. Many beginning traders believe that you need over $25,000 begin day trading. While you do need over $25,000 to bypass the Pattern Day Trader rule, you do not need $25,000 to actually trade. Traders with under $25,000 will just be limited to three round-trip trades (buying and selling in the same day) within a 5-day period, which is great for beginning traders who need to learn how to choose fewer trades wisely.

You can trade any of the following:

• Trade stocks
• Trade ETFs
• Trade forex
• Trade mutual funds
• Trade options
• Trade bonds
• Trade futures
• Trade derivatives

Step 2: Find The Best Day Trading Broker For You

Once you’ve determined what you’re trading, it’s likely pretty obvious that you’ll need to look for a broker. Brokers are usually falling all over themselves to attract day traders to their business—after all, frequent trading by you means commissions for them.

However, at times, it’s best to put aside any offers they’re throwing your way and instead, carefully evaluate the pros and cons. Here are a few things to consider in order to identify the best broker for you:

• Consider commissions: 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.

• Research: The speculative nature of day trading demands 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.

• Charting: Make sure you’re getting great charting tools and software. 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.

• Speed: 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.

• Paper trading: For brand-new traders, 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.

• Regulation and safety: Be sure that the firm you’re looking into is regulated by an agency with key metrics they are required to follow.

• Consider safety and reputation: 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.

• Customer Service: Don’t forget about good customer service. 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. If you’re in the middle of a trade and something shorts out on your trading platform, you’d better have a broker who can help. For more specific brokers, check out Benzinga’s Best Brokers for Day Trading.

Read Review

Commissions

$0 $6.95 for OTC Stocks

Account Minimum

$0

Get started securely through TD Ameritrade’s website

More Details

Commissions

$0 $6.95 for OTC Stocks

Account Minimum

$0

1 Minute Review

This publicly listed discount broker, which is in existence for over four decades, is service-intensive, offering intuitive and powerful investment tools. Especially, with equity investing, a flat fee is charged, with the firm claiming that it charges no trade minimum, no data fees, and no platform fees. Though it is pricier than many other discount brokers, what tilts the scales in its favor is its well-rounded service offerings and the quality and value it offers its clients.

Best For

• Novice investors
• Retirement savers
• Day traders

Pros

• World-class trading platforms
• Detailed research reports and Education Center
• Assets ranging from stocks and ETFs to derivatives like futures and options

Cons

• Thinkorswim can be overwhelming to inexperienced traders
• Derivatives trading more costly than some competitors
• Expensive margin rates

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Commissions

$0 flat rate, includes closing costs

Account Minimum

$0

Get started securely through Tastyworks’s website

More Details

Commissions

$0 flat rate, includes closing costs

Account Minimum

$0

1 Minute Review

Tastyworks is a sophisticated options and futures broker aimed toward experienced traders. The platform was designed by the founders of thinkorswim with functionality and precision for complicated options trades and strategies. Tastyworks offers stocks and ETFs to trade too, but the main focus is options. 

Options on tastyworks are only charged a 1-way, $1 commission —  far cheaper than almost all competitors. Commissions on futures and micro futures are also affordable, and there’s no minimum required to open a cash account. It’s $2,000 if you want to use margin.

Best For

• Options traders
• Futures traders
• Advanced traders

Pros

• Powerful platform inspired by thinkorswim
• Multiple order types and strategies
• Cheap options commissions

Cons

• Advanced platform could intimidate new traders
• No demo or paper trading

Read Review

Commissions

$0

Account Minimum

$0

Get started securely through Webull’s website

More Details

Commissions

$0

Account Minimum

$0

1 Minute Review

Webull, founded in 2017, is a mobile app-based brokerage that features commission-free stock and exchange-traded fund (ETF) trading. It’s regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).

Webull offers active traders technical indicators, economic calendars, ratings from research agencies, margin trading and short-selling. Webull’s trading platform is designed for intermediate and experienced traders, although beginning traders can also benefit.

Webull is widely considered one of the best Robinhood alternatives.

Best For

• Active traders
• Intermediate traders
• Advanced traders

Pros

• Commission-free trading in over 5,000 different stocks and ETFs
• No account maintenance fees or software platform fees
• No charges to open and maintain an account
• Leverage of 4:1 on margin trades made the same day and leverage of 2:1 on trades held overnight
• Intuitive trading platform with technical and fundamental analysis tools

Cons

• Does not support trading in options, mutual funds, bonds or OTC stocks

Step 3: Determine When You’ll Day Trade

Be sure to trade during the same time every day. It’s typical that day traders will trade the stock market an hour after the open, 9:30-10:30 EST, or in the last hour before close, 3-4 p.m. EST. It’s been continually noted by day traders that the open and close are the best times to make the most money.

• Best Time to Buy Stocks
• When is the Stock Market Closed?

Step 4: Choose Stocks to Trade

Selecting the stocks you’d like to trade can be an overwhelming task, considering the thousands of options available to you. To narrow the field, choose one or two stocks you’d like to trade, and trade them all the time.

Otherwise, you can search for stocks that are performing well on a day-to-day basis. Doing this involves a lot more diligent research on which stocks could perform well. You’ll need to be in tune with the news, and in particular, alerts that will help you determine which stocks will be worth trading the next day. However, when you’re just starting out, it’s recommended to stick to the one-to-two stock strategy until you become a savvy day trader.

Step 5: Set Aside an Amount to Invest

You’ll need to decide in advance how much money you can risk on each trade. It’s recommended that you risk no more than 1-2% of your account per trade and assess the amount well ahead of time. Also, 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. Brokers don’t allow you to trade on margin for free—and most charge high-interest rates for borrowing their money.

Day Trading Lingo

The mechanics of day trading are crucial to beginners’ understanding, and unfortunately, can be confusing. Here are a few common terms/ideas to research in-depth before becoming a full-fledged expert day trader:

• Ask: The price a seller is willing to sell for.
• Bid: The price a buyer is willing to buy for.
• Breakouts: When a stock “breaks out” above its previous resistance level
• Candlesticks: A type of chart where each candle represents the high, low, open and close for a given period.

• Covering: Buying back the shares that were sold short.
• Float: The amount of shares available for public trading.
• Gap Up/Down: When a stock opens above or below its previous closing price.
• Going Long: Buying a stock with intentions of selling at a higher price.
• High/Low of Day (HOD/LOD): A stock’s highest or lowest price for the day
• Hard-to-borrow: A stock that is not readily available to short. Brokers will often charge an additional fee to those trying to short hard to borrow stocks.
• Liquidity: The ease with which a stock can be bought or sold without drastically affecting the stock’s price
• Low Float: A stock with a low amount of publicly traded shares, often times experiencing higher volatility
• Market makers: The firms responsible for facilitating buy & sell orders and maintaining liquidity in the markets.
• Market Cap: The total dollar value of a company based on the stock’s price and outstanding shares.
• Outstanding Shares: The total amount of shares issued, including both the float and institutional ownership.
• Profits and Losses (P&L): A portfolio’s gains/losses for a given period.
• Red-to-Green and Green-to-Red: When a stock goes from being up on the day to down on the day (or vice versa).
• Resistance: A price level at which sellers repeatedly overpower buyers, making it difficult for the stock to increase in price.

• Scalp: Taking advantage of very small price changes
• Short Selling: Selling shares of a stock that you do not own in hopes of buying the shares back at a lower price.
• Spread: The price difference between the bid and the ask
• Support: A price level at which buyers repeatedly overwhelm sellers, making it difficult for the stock to drop lower in price.
• Technical Analysis: Analyzing a stock’s historical price action (using charts and technical indicators) to predict future movement.
• Trend: The general direction of a stock’s price movement. A stock can be in an uptrend or downtrend.

Final Thoughts on Day Trading

You don’t have to have huge amounts of money to be a day trader. However, if you’re interested in pattern-day trading, you must have a margin account and you’ll be required to maintain $25,000 equity in order to continue trading.

If your account falls below $25,000, an equity call is issued and the minimum must be restored by cash deposit or other marginal 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.

Ready to start day trading? Check out Benzinga’s top picks for the best day trading software, the best day trading brokers and the best courses to begin day trading.