Day Trading Guide

There is a reason every brokerage desires to have as many active or day traders as possible. They usually have a lot of experience and don’t require a lot of assistance compared to newcomers, not to mention that they generate a lot of revenue for the brokers every day. Of course, the terms don’t have strict definitions. So, how many trades do you have to make to become a “day trader” or an “active” one?

We did speak to a number of brokerages, experts, and investors to see if there is a definitive answer. And, it does seem like there isn’t an exact number where “active trading” starts, especially since every broker seems to have a different set of rules when it comes to that. Rules that usually depend on their prices and costs. In fact, one of the brokers who deals with active traders even thought up a new term of “hyperactive trading.” The broker in question is Lightspeed, and they believe that people overuse the term “active trading.” So, they distinguish between active traders and hyperactive ones. The former would be those who place 10 or more trades per month, while the latter would be those who place at least ten times that volume.

So, let’s take those numbers and go with them. To become an active trader, you would have to place around 120 trades, or more, every year. However, to qualify to become a hyperactive trader, the number is much larger. You would have to place at least 1,200 trades per year or more. So, figure out in which of these two categories you fit in better before you go on to choose your broker.
Top 5 Platforms for Day Trading
As we have said, in order to choose the best broker for yourself, you need to understand where you fit in. If you are an active trader, paying up to 7 dollars per trade should be acceptable. Finding a low-fee service is desirable, but you also require a platform that has a lot of features. After all, research is fundamental in trading. That means that you should be willing to pay a bit more per trade for access to those features.

On the other hand, if you are a hyperactive trader, it is not as important. We spoke to a number of hyperactive traders, and they say that the costs and the speed of execution are the most important factors. They believe that flashy tools and intricate research are simply not that crucial to them. So, when we were making our list of the best day trading platforms, we kept those in our minds. But, without further ado, these are our five picks for day traders.
5. Fidelity – 9/10
4. TD Ameritrade – 9/10
3. Lightspeed – 10/10
2. TradeStation – 10/10
1. Interactive Brokers – 10/10
Let’s start out with our number one pick for this list. Interactive Broker is a clear winner when it comes to the needs of day traders. This broker caters to both subcategories of active traders. If you choose them, you won’t find a beginner friendly platform. In fact, we wouldn’t recommend it for new investors. And it doesn’t boast impressive research features. However, you will see that they have everything you need for day trading. Highly customizable hotkeys that you can program for a variety of actions. Pre-set order types that will let you place any imaginable trade. They even include algorithmic orders in there. And, they offer the lowest margin rates you will find. Not to mention that their commissions are the most affordable in the industry. All of this makes the platform also popular among hedge funds and institutional traders.

We should also mention that this broker, along with Lightspeed and TradeStation, offers something called “unbundled” rates. That term refers to rates that include all of the rebates the brokerages get for your trades. In essence, a lot of exchanges will offer rebates to your brokerage for routing your transactions to them. And these three brokers will pass every penny of those rebates on to you. Now, to be fair, these rebates are relatively small amounts of money. Usually, you would have to go through 10 shares to get a single penny. However, after a year of trading, the numbers add up. In essence, these rebates will reduce the amount of money you have to pay per trade.

Let’s use Lightspeed as an example. If you’re using Lightspeed to trade a 1,000 shares on the NYSE, the rebate will be 0.14 pennies per share. At the same time, the commission rate you pay to Lightspeed is 0.45 pennies per share. So, trading a thousand shares would end up costing you $3.10 instead of $4.50. Now, if you are a hyperactive trader with 2,000 trades per year, this can add up to $2,800 of a difference in that year alone.

On the other hand, you could go with one of our other top brokers. TradeStation, for example, has three different structures when it comes to commissions. TD Ameritrade boasts the thinkorswim desktop platform which is basically second to none, and a mobile app to boot. And Fidelity is on the list thanks to their order execution quality.
Tips for Choosing Your Broker
Overall, finding the perfect broker for your needs mostly depends on how you plan to trade. For starters, decide how many trades you plan on making per year in advance. Then, try to decide between powerful tools and low commissions. And, don’t forget to check the minimum deposit values. In the end, the rest is up to you.

Posted by Judy Romero