If you work as a day trader or want to be one, you will definitely need a broker that fits your needs. Unlike investors who buy and hold stocks for long periods, day traders need to incur the lowest possible costs, along with using tools like trading platforms and strong fundamental research.
Best Online Brokers for Day Trading in January 2024:
The brokers mentioned below offer these features and much more, making them highly suitable for day traders.
Merrill Edge Methodology:
Bankrate evaluates brokers based on a number of factors including:
- Cost (commissions, account fees, etc.)
- Account types
- Investment offerings
- Research and education
- Customer support
What is Day Trading?
Day trading is the practice of buying and selling a security within a single day. The Financial Industry Regulatory Authority (FINRA) defines typical day traders as those who trade in a security four or more times in a five-day period, provided that the number of trades exceeds 6 percent of the trader’s total activity during that time frame.
While some traders may hold positions for a few days, the typical day trader prefers to be “flat” overnight, meaning all positions are closed at the market’s close for the day. These traders often try to avoid price movements resulting from any changes in sentiment or news that may occur overnight.
Day traders usually look to execute many small trades throughout the day in an attempt to capture small spreads on each trade, a practice known as scalping. They often exploit minute price movements in the security to find an attractive buying price, and when the market is favorable, they look to sell the security, sometimes just minutes later.
What to Consider
With a strategy involving a lot of trading, one of the primary concerns for the day trader is commissions, or how much the broker will charge for each trade. Regardless of whether the trade is profitable or not, the broker gets their share anyway, whether on the buy or sell process. So savvy traders look to minimize trading costs as much as possible, as that keeps more money in their pockets.
Commissions have diminished among stock traders these days, as the industry has shifted to zero commissions, although options traders may want to keep a close eye on their costs.
However, traders should balance this concern with other broker features that may help them succeed, such as the trading platform, research, and tools. Therefore, while cost is an important consideration, it is not the only factor.
Finally, when selecting a broker, day traders will find that the typical account minimums do not apply to them. Instead, typical day traders must maintain at least $25,000 in equity in their accounts, or they will not be able to engage in day trading, according to FINRA rules.
Overview: Best Brokers for Day Trading in January 2024
Fidelity
Fidelity Investments provides core day trading features well, from research to trading platform to reasonable commissions. The company’s Active Trader Pro platform offers a fully customizable look, while the Wealth-Lab Pro backtesting tool allows you to test strategies against 20 years of historical data. The available research is some of the best in the industry, with reports from Thomson Reuters and Ned Davis, among others. For all this, you will not pay any commission on stock and ETF trades, and Fidelity also prides itself on not charging additional fees for other accounts.
Commissions:
0 dollars (stocks and ETFs); $0.65 per contract (options).
Interactive Brokers
Interactive Brokers offers a lot for day traders – a popular trading platform and the ability to receive volume discounts if you use the broker’s Pro pricing plan. If you trade large volumes, the broker even reduces its base commission by more than 90%. Interactive Brokers provides access to over 200 news and research services – about half of which are free for clients – and the Trader Workstation platform will assist technical traders with charting and news flow.
If you choose the broker’s new Lite pricing plan, you will enjoy commission-free trading for stocks and ETFs, along with all the other features offered by brokers. Interactive Brokers was named the best broker for advanced traders as part of the Bankrate Awards for 2024.
Commissions: $0.005 per share (stocks and ETFs) for Pro plan (minimum $1) and $0 for Lite plan; $0.65 per contract (options) with volume discounts available.
TradeStation
TradeStation is known for its flexible and convenient pricing plans, but the broker also offers an excellent trading platform. The base commission for TradeStation’s options is in line with the industry standard at $0, while the per-contract fee of $0.60 exceeds most competitors. The commission for stocks and ETFs is now zero (on the first 10,000 shares per trade) as well. The fully customizable TradeStation desktop platform features numerous technical indicators, as well as the ability to create your own. Traders will likely find OptionStation Pro a valuable tool for setting up trades and visualizing potential returns.
Commissions: $0 for the first 10,000 shares per trade and $0.005 per share thereafter (stocks and ETFs); $0.60 per contract (options).
E-Trade
E-Trade performs well across the board, especially with a reduced commission structure on options, and the broker truly stands out with its extensive array of fundamental research. Research offerings include the broker’s market commentary as well as reports from Thomson Reuters, Moody’s, and others. The Power E-Trade platform and similarly named mobile app help you get started trading quickly and provide over 100 technical studies for analyzing trades.
Commissions: $0 (stocks and ETFs); $0.65 or $0.50 reduced, with 30 trades in the quarter (options).
Charles Schwab
Charles Schwab is a great all-around broker, and this quality shows in its trading platform, competitive pricing, and research offerings. The recently added thinkorswim trading platform, thanks to its acquisition of TD Ameritrade, allows you to organize planning according to your trading process, along with integrating news feeds and live CNBC coverage. You’ll be able to set up complex options orders on a single trading ticket, find stock ideas with plenty of research from third parties, and Schwab’s screening tools.
Commissions: $0 (stocks and ETFs); $0.65 per contract (options).
tastytrade
Active traders will be thrilled with the offering from tastytrade, a broker that started in 2017 and keeps costs low, especially for those looking to trade options. You’ll pay a fixed $1 per contract when buying, but nothing when selling, which averages out to $0.50 per leg, compared to the industry standard of $0.65. The broker also caps the commission on each leg of options trades at just $10, making it one of the best places to trade options. Commissions are also limited on cryptocurrency trades, while stock and ETF trades are always commission-free.
Commissions: $0 (stocks and ETFs); $1 per contract when buying, $0 when selling, capped at $10 per leg (options).
Merrill
Edge
Merrill Edge is another strong broker for active traders due to its low commissions and robust trading platform. Like most other brokers, stock and ETF trades are commission-free, and you’ll pay $0.65 per contract for options. The Merrill Edge MarketPro trading platform can be customized to suit your needs. You’ll have access to over 105 technical indicators and 23 drawing tools, making it easy to analyze markets and trading strategies. You’ll also be able to access investment research from top providers, including Bank of America and Morningstar.
Commissions: $0 (stocks and ETFs); $0.65 per contract (options).
Why Should I Use an Online Broker for Day Trading?
Online brokers make day trading much easier than using a traditional broker. With an online broker, you’ll gain several advantages:
- Instant access: With an online broker, you can access your account at any moment, whether to trade, check balances and margin limits, or transfer funds.
- Cost-free trading: Online brokers offer commission-free trading, so you can trade stocks and ETFs (and sometimes options) for free, while traditional brokers may still charge fees.
- Faster transactions: Day traders may move in and out of securities multiple times a day. They need to execute trades quickly without having to direct someone else to trade.
- Low fees: In addition to trading fees, online brokers reduce many costs and eliminate many account fees that large traditional players might impose.
- Choice of trading platform: By choosing an online broker, you’ll be able to use the trading platform that works best for your needs and trading habits.
In addition to these factors, day traders may prefer using an online broker because they can quickly access the market through a mobile app and stay updated on their trades.
How Much Money Do I Need to Start Day Trading?
Many may not need much to start day trading if they don’t do it frequently. But if you do, you’ll need a much larger amount, according to FINRA rules regarding typical day trading.
Once again, FINRA defines typical day trading as moving in and out of a security four or more times within a five-day period if those trades account for more than 6 percent of the trader’s total activity during that time. Therefore, traders looking to fly under the radar must comply with this rule. However, some brokers may use a broader rule, meaning more traders will be classified as day traders.
If you trade frequently, you’ll be classified as a typical day trader, and you’ll need to maintain at least $25,000 in equity in your account at all times. If the account falls below this level, trading will be suspended until the account reaches the minimum equity requirement.
Overall, research regularly indicates that the vast majority (in some studies, nearly all) day traders lose money. This is not surprising, as they are trading against professional traders and highly sophisticated computer algorithms. Therefore, it is highly risky.
Frequently Asked Questions About Day Trading
How Can I Learn Day Trading?
Day trading is very challenging and should be considered more like gambling than investing. However, there are books that explain day trading strategies and online resources. It may also be beneficial for beginner day traders to find someone who is currently day trading and see if you can learn from their approach. It is wise to start trading with small amounts of money that you can afford to lose.
What
What are the risks of day trading?
Day trading can involve many risks, but the primary risk is that your trades will be unprofitable and you’ll lose money. Securities are affected by a variety of different factors throughout the day, many of which are difficult, if not impossible, to predict in advance. If you’re lucky enough to make a profit, you’ll pay short-term capital gains taxes that can be as high as 37 percent.
Many traders also use margin accounts, allowing them to leverage their positions. But leverage works both ways and can incur losses just as easily as it can enhance gains.
How can I open a brokerage account?
Opening an online brokerage account begins with choosing the broker you want to work with. From there, you can start the setup in just a few minutes after answering some questions and selecting the type of account you want to open. Once your account is funded, you can begin investing.
What is a brokerage fee?
There may be fees associated with brokerage accounts, but most online brokers do not charge commissions for buying and selling stocks and ETFs these days. If you’re looking to trade options, you’ll pay a commission at most brokers and may also see fees for things like paper statements or closing an IRA.
What is the difference between a cash account and a margin account?
A cash account is an account that funds all of your trading activities with available cash, while a margin account allows you to borrow money in an attempt to increase your returns. Remember that borrowing or using leverage to invest works both ways. It can increase your returns but also your losses, and you may face a margin call if your losses become too large.
Editorial note: All investors are encouraged to conduct their own independent research into investment strategies before making an investment decision. Additionally, investors are advised that past performance of investment products does not necessarily guarantee future increases in value.
Source: https://www.aol.com/best-online-brokers-day-trading-041425107.html
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