Best online brokers for day trading
f you’re a day trader or a prospective one, you’ll definitely want a brokerage that fits your needs. Unlike buy-and-hold investors — who access the market infrequently — day traders need to optimize for low costs, as well as utilize tools such as trading platforms and solid fundamental research.
Offering these features and much more, the brokers mentioned below make a great fit for day traders.
Best online brokers for day trading in February:
- Fidelity
- Interactive Brokers
- TradeStation
- TD Ameritrade
- E-Trade
- Charles Schwab
What is day trading?
Day trading is the practice of buying and selling a security within the span of a day. The Financial Industry Regulatory Authority (FINRA) identifies pattern day traders as those who trade in and out of a security four or more times in a five-day span, provided the number of trades are more than 6 percent of the trader’s total activity in that same period.
While some traders may hold positions for a few days, a typical day trader likes to be “flat” overnight — which means having all positions closed when the market closes for the day. These traders often try to avoid price movements from any change in sentiment or news that might occur overnight.
Typically, day traders are looking to make many small trades throughout the day in an attempt to capture small spreads on each transaction, a practice called scalping. Day traders often take advantage of minute-by-minute moves in a security to find an attractive buy price, and when the market has firmed up they look to sell the security, sometimes only minutes later.
What to consider
With a strategy that involves so much trading, one of the primary concerns for a day trader is commissions, or how much a brokerage will charge for each trade. Regardless of whether a trade is a winner or a loser, the brokerage gets its cut either way — both on the buy and the sell transaction. So savvy traders look to save on trading costs as much as possible, because that keeps more money in their own pockets.
Commissions are less of a concern with stock traders these days, because the industry has shifted to zero commissions, though options traders may want to watch their costs closely.
However, traders must balance this concern with the other features of a brokerage that may help them be successful, such as the trading platform, research and tools. So while cost is an important consideration, it’s not the only one.
Finally, when selecting a brokerage, day traders will find that a brokerage’s typical account minimums do not apply to them. Instead, pattern day traders must maintain at least $25,000 of equity in their accounts or they will not be able to day trade, according to FINRA rules.
Overview: Top brokers for day trading in February 2022
Fidelity
Fidelity Investments provides the core day-trading features well, from research to trading platform to reasonable commissions. The company’s flagship platform, Active Trader Pro, offers a fully customizable look while Wealth-Lab Pro, a backtesting tool, lets you test a strategy against 20 years of historical data. The research on tap is among the best in the industry, with reports from Thomson Reuters and Ned Davis, among others. For all this, you’ll pay no commission on stock and ETF trades, and Fidelity also prides itself on not nickel-and-diming you on other account fees either.
Commissions: $0 (stocks and ETFs); $0.65 per contract (options).
Interactive Brokers
Interactive Brokers brings a lot to the table for day traders – a well-regarded trading platform and the potential for volume discounts if you’re using the broker’s Pro service. If you’re doing huge volume, the broker even discounts its base commission by up to 90 percent. While Interactive Brokers isn’t known for its research, its Trader Workstation platform will help technical traders with charting and streaming news.
If you opt for the broker’s newer Lite service tier, you’ll enjoy no-commission stock and ETF trades and many of the brokers’ other top features.
Commissions: $0.005 per share (stocks and ETFs) for the Pro tier (minimum $1) and $0 for the Lite tier; $0.65 per contract (options) and volume discounts are available.
TradeStation
One of TradeStation’s top features is its flexible and convenient pricing plans, but the broker also offers a fantastic trading platform, too. TradeStation’s base commission for options is in line with the industry standard at $0, while its per-contract fee of $0.50 edges out most rivals. Its commission for stocks and ETFs is now zero (on the first 10,000 shares per trade) too. TradeStation’s fully customizable desktop platform allows you to use tons of technical indicators, as well as create your own. And traders will likely find OptionStation Pro a valuable tool for setting up trades and visualizing the potential payoffs.
Commissions: $0 for the first 10,000 shares per trade and $0.005 per share after that (stocks and ETFs); $0.50 per contract (options).
TD Ameritrade
TD Ameritrade’s strongest suit might just be its much-lauded thinkorswim trading platform, where in addition to stocks and options, you’ll be able to trade forex, futures and futures options. You’ll have access to more than 400 technical studies, and you’ll have plenty of other tools (charting and a trading simulator, for example) that pro traders love. Plus, those looking for more fundamental research will find plenty. You get all this and there’s no base commission.
(Charles Schwab has purchased TD Ameritrade, and the companies expect most accounts to be converted to Schwab between April and September 2023.)
Commissions: $0 (stocks and ETFs); $0.65 per contract (options).
E-Trade
E-Trade performs well all-around, especially with a discounted commission structure on options, and the broker really shines with its range of fundamental research. Research offerings include the broker’s own market commentary as well as reports from Thomson Reuters and Moody’s, among others. The Power E-Trade platform and the similarly named mobile app get you trading quickly and offer more than 100 technical studies to analyze the trading action.
Commissions: $0 (stocks and ETFs); $0.65 or $0.50 discounted, with 30 trades per quarter (options).
Charles Schwab
Charles Schwab is a great overall broker, and this trait shows in its trading platform, competitive pricing and range of research. The StreetSmart Edge platform (in desktop and web versions) allows you to structure the layout according to your trading process, integrating news feeds and live CNBC coverage. You’ll be able to set up complex options orders on an all-in-one trade ticket, and find stock ideas with a ton of third-party research and Schwab’s screening tools.
Commissions: $0 (stocks and ETFs); $0.65 per contract (options).
Why should I use an online broker for day trading?
An online broker makes it much easier to day trade than using a traditional broker. With an online broker you’ll have a number of advantages:
- Immediate access: With an online broker you can access your account at any moment, whether for trading, to check balances and margin limits, or to move money.
- No-cost trading: Online brokers offer no-commission trading, so you can trade stocks and ETFs (and sometimes options) for free while traditional brokers may still charge.
- Faster transactions: Day traders may move in and out of a security multiple times a day. They need to transact quickly without having to instruct someone else to trade.
- Low fees: Besides trading fees, online brokers have reduced or eliminated many costs, getting rid of many account fees that large traditional players may still charge.
- Choice of trading platform: By choosing an online broker, you’ll be able to use the trading platform that works best for your trading needs and habits.
On top of these factors, day traders may like using an online broker because they can quickly access the market with a mobile app and stay apprised of where their positions are trading.
How much money do I need to begin day trading?
It may not take a lot to get started with day trading if you don’t do it frequently. But if you do, you’re going to need significantly more money, according to FINRA rules around pattern day trading.
Again, FINRA defines pattern day trading as moving in and out of a security four or more times in a five-day span if the trades comprise more than 6 percent of the trader’s total activity during that period. So traders looking to stay below the radar need to abide by this rule. But some brokers may use a more inclusive rule, meaning that it will identify more traders.
If you’re day trading frequently, you’ll be labelled a pattern day trader, and will be forced to have 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 level.
In effect, these rules mean that you’ll need significantly more in your account to ensure your trading privileges stay in good standing, since losses may quickly move you below the $25,000 level.
While you can engage in day trading, research regularly shows that the vast majority (in some studies nearly all) of day traders lose money. That’s not surprising, since they’re trading against professional traders and highly sophisticated computer algorithms. So it’s incredibly risky.
