How to Day Trade on Charles Schwab

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Contributor, Benzinga
December 28, 2022

Open a Charles Schwab account to get started.

Day trading involves actively buying and selling a batch of securities within the same day or even within seconds. According to the Financial Industry Regulatory Authority (FINRA), you're considered a pattern day trader if you trade in and out of a security at least four times in a span of five business days — guaranteed the number of trades is over 6% of your total trade activity in that same period. In day trading, the emphasis is on capitalizing on short-term price swings or changes in securities' market prices resulting from inefficiency in supply or demand. 

If you're a day trader or hope to try it in the future, you'll want a brokerage that'll satisfy your day-trading needs. The reason is that, unlike buy-and-hold investors (that access the market less frequently), you must optimize for low cost and efficiency regarding available trading tools or platforms, as well as solid fundamental research. 

Charles Schwab's comprehensive trading platform, robust mobile app, competitive pricing, and range of innovative research or educational tools easily differentiates it from other brokerages. And so, it is one of the best brokerages and the favorite for experienced and beginner day traders. Benzinga spotlights the Charles Schwab brokerage, explaining the simple steps to set up your account and start your day trading strategies. 

How to Day Trade on Charles Schwab

Besides its comprehensive trading platforms (including web trading, trading software or StreetSmart Edge® and Schwab mobile trading app), competitive pricing, and sophisticated market research tools, another outstanding feature of Schwab's brokerage is the ease with which one can quickly get started. Getting started and placing your first trade takes about 10 minutes and involves the following simple steps.

Open an Account 

You can open the Charles Schwab brokerage account online or via phone at your convenience. If you'd prefer, you can also do that in one of the over 300 branches nationwide. To open an account online, head to the "open account page" and choose an account type. Schwab's individual brokerage account is the most suitable for day trading, except if you're considering a pooled investment with your significant others or family. Generally, to open a Schwab brokerage account, you'll need your: 

  • social security numbers (SSN) or tax identification numbers (TIN)
  • email address and phone number
  •  employer's name and mailing address (if applicable)
  • Driver's license 
  • Statement information for any cash or assets you'd like to transfer

If you choose an individual brokerage account, scroll down the page, click "Get Started," and fill in your personal information, including name, birth date, email, phone, SSN, etc. Subsequently, you'll create your login credentials (username and password) and verify your account identity using a 2FA authentication method. 

Once your account has been verified and authenticated, you can continue to fill in other information — residential address, employment, funding sources, and preferred account features, among others. Review your information and answers to relevant questions when done to ensure accuracy. Your account setup is finalized by clicking continue after reading and accepting the terms and conditions. Overall, the process is fast and hassle-free. 

Fund Your Account

The platform offers flexibility regarding how you can deposit money or fund your account. Depending on your preference, you can leverage any of the multiple funding options available. These include: 

  • Check deposits via mail or in person at your local Schwab branch. To save yourself the hassles of mailing checks or looking for a Schwab branch nearby, you can leverage the Schwab Mobile Deposit services when you download the Schwab Mobile app. Once you enroll in the service, you can deposit your checks in a 4-step procedure that takes less than five minutes. 
  • Electronically using Schwab MoneyLink. The MoneyLink is a free service that facilitates electronic fund transfers between your Schwab brokerage account and external accounts at other U.S. financial institutions. You can seamlessly enroll or set up MoneyLink, verify trial deposits and manage your existing profile on the web platform within minutes. To get started, go to "Accounts" and click "Transfers and Payments" and then "External Accounts." Enrolling via the Schwab Mobile app requires a slightly more elaborate process. 
  • Wire transfer from a different financial institution

Electronic fund transfers and incoming wires are often available for same-day trading. Although In certain instances, such deposits may be subject to a five days holding period or may not be immediately used to trade specific securities.

In line with the FINRA rules for pattern day trading, you must maintain a $25,000 minimum account balance in combined cash and equities at all times — the so-called margin requirement. It is a mandatory requirement for day trading using Schwab's platform, and you must enable margin trading when opening an individual brokerage account for day trading. Unfortunately, day trading using a cash account is prohibited by FINRA.

Place Your Trade

Once you've funded your account and met the margin requirements, you can start day trading. To place a trade, log in to your account and, select "Trade" on the menu, click the "All-In-One-Trade-Ticket." — a highly intuitive tool that streamlines access to multiple asset types (stocks, ETFs, and options) and helps you place or execute a trade from a single location.

The tool will populate the relevant data as you build your order starting from the ticker symbol and strategies. Do you want to "buy" or "sell" your desired security? Choose accordingly, and include relevant details like the number of shares of the equity you want to day trade; select an "order type" and review your order. Once you've confirmed your details, go ahead and place a trade. 

Why Choose Charles Schwab for Day Trading 

The Charles Schwab platform offers many excellent features to help you enjoy your day trading experience. For instance,

  • The Day Trading Buying Power (DTBP) helps you track your balances, ensuring it stays within the mandatory $25,000 minimum balance required for day trading. Specifically, DTBP represents the maximum amount of marginable equity you can day trade in your margin account without getting flagged or incurring a margin call. You can often find DTBP in the balance section of your profile. 
  • The Screeners and Idea Hub make it easy to identify high-potential day trading opportunities based on trends, sentiments, volatility, stock volumes, price performance, analyst ratings, or your specific criteria.
  • You can view in-depth or highly advanced charting, pattern-based intraday analysis, get real-time price quotes and breaking news, and create a watchlist. These enhance fast decision-making, which is vital in day trading. 
  • The All-in-One Trade Ticket streamlines order filling and execution by enabling you to select your preferred equity, strategies, and about three conditional orders in a single window or location. 
  • In-depth and robust fundamental research enables you to access core metrics, including company earnings, yields, analyst ratings, and more.        

Overall, Schwab's trading platform equips you with the requisite tool to take you from insight to fast action, thereby increasing your potential to maximize profits. 

Advantages of Day Trading 

Although considered a high-risk approach to trading, day trading offers various incredible advantages to traders. Some of the core benefits of day trading include the following:

No Overnight Risk

Unlike traditional long-term traders or buy-and-hold investors, day traders close their positions at or before the end of each trading day. This erases the risk inherent in holding an equity position open overnight, ensuring that your profit is secured and unaffected by oversight news that may create upheaval or turbulence in the stock market. Such turbulence may cause the market to either open high or lower the next day, erasing gains and losses recorded earlier by long-term traders. A day trader would sleep well at night knowing their profit is safe if they had a good day.

Flexibility 

Besides the high-profit potential, professional day traders are drawn by the optimum flexibility it offers. Imagine relaxing with a coffee while executing a trade on your computer in the comfort of your home or your preferred location. There are no overbearing and unappreciative bosses to deal with or complex demands to meet. You're in it for yourself — you're your own boss. However, while freedom can be alluring, it can be intoxicating. So you must have excellent self-discipline and work ethic to excel.

Profit or Returns takes Lesser Time and can Compound Quickly

Overall, day trading requires considerably less time to generate profit or returns. Expert day traders make only a few trades early in the day with a substantial profit to show. Such profit can be added to the subsequent day's trading, enabling them to earn even higher profits.

Success in a Bearish or Turbulent Market 

By leveraging short-selling strategies, professional day traders can more easily take advantage of bearish markets resulting from recessionary or inflationary economies. Bearish markets are characterized by falling equity prices which can yield optimal profits for short sellers. Profiting from falling stock prices in a bear market is a tremendous advantage for knowledgeable day traders.

Availability of Information and Resources

Although being well-grounded in investing and trading can significantly increase your chances of success as a day trader. You do not require expert knowledge to get started. The internet offers you a treasure trove of readily accessible information sufficient to get you started. Furthermore, some brokerages allow traders to practice with demo accounts at little or no fees. This is in addition to the sophisticated research and educational tools made available to them.

Drawbacks of Day Trading 

There's been a lot of debate over the risk vs. rewards of day trading. While it offers many advantages, there are also various inherent risks or drawbacks in day trading. Some of the core drawbacks are:

Emotional and Psychological Stress

Like other forms of trading, day trading is all about strategizing. Excellent strategies are formed by carefully analyzing and learning the financial market. Understanding the financial market takes time and effort, and it can be frustrating when the results are not immediate. 

When your strategy seems not to be working, and you lose more often than you win, you may wonder if you're making a huge financial mistake or have entirely lost the edge. Such self-doubt can spiral out of control over time, affecting your emotional and psychological health and causing you to lose more. 

Lack of Consistent Returns

You can hardly earn consistent profit via trading. Forget the regular online noise about daily, weekly, or monthly winning sprees. It only sometimes happens. While you can make substantial profits as a day trader, earning is often spontaneous and highly dependent on your knowledge, experience, and trading expertise. 

Sometimes you'll have an excellent strategy without the opportunity in the market to apply it and reap returns. This feast and farming profit may take a toll on your capital in a way that impacts your standard of living.

Extreme Boredom 

Despite its flexibility, day trading can be highly dull and unexciting. A typical day may involve spending hours watching the market for a potential trading opportunity or crushing numerous data to test a trading idea. When you're not actively scathing for trading opportunities, you might be reading some new day trading or forex trading books for new ideas. You'll be surprised at how fast such monotonous lifestyles can drive you nuts.

High Capital Requirements 

Besides the cost of acquiring computers and the latest software to enhance accessibility to financial information or spot price movement, day trading is made excessively costly by the high margin requirement. Few people can afford the $25,000 minimum balance mandated by FINRA to day trade in a margin account. 

Additionally, taxation can be a nightmare as you may be subject to capital gains or losses when trading various available instruments in the financial market. You also have to worry about the potential multiple transaction fees arising from holding numerous positions and the fast-paced nature of day trading.

Who Should Try Day Trading?

While day trading is open to all traders and investors, it is risky and unsuitable for everyone. Generally, you need excellent knowledge and experience in the stock market to succeed in day trading. Furthermore, you also require high-risk tolerance and great discipline since losses will occur often. Most vitally, you must have sufficient capital to meet the margin requirements and finance other resources needed to get started. That said, day trading is ideal for the following set of traders:

  • Active fund managers with excellent investment training and corporate management of listed businesses 
  • Traders and investors with a well-rounded knowledge of the stock market 
  • High-net-worth traders or investors 
  • Traders and investors with a high-risk tolerance and great self-discipline 
  • High-IQ and tech-savvy traders and investors that can adapt to changing market conditions and device-winning strategies under pressure

Compare Day Trading Brokerages 

Benzinga reviews, compare and provides insights into various day trading brokerage platforms.

Frequently Asked Questions

Q

Does Charles Schwab allow day trading?

A

Yes. Charles Schwab’s incredible trading platforms, suites of trading tools, and affordable pricing make it one of the best day trading brokerages. 

Q

Can I buy and sell on the same day on Charles Schwab?

A

Yes, you can buy and sell equities on the same day on the Charles Schwab platform.

About Chika Uchendu

Chika Uchendu is an investing writer and investment platform analyst passionate about helping people learn more about managing their finances, making informed investment decisions, and navigating the complex landscape of investment platforms to find the best options for their financial goals and needs. He has over 8 years of experience writing compelling articles for various reputable publishers across diverse topics. When he’s not writing content, he’s wrangling and analyzing data to help businesses make informed decisions.