Day trading refers to the practice of buying and selling securities within a single trading day. This can occur in a variety of markets and security types such as stocks, ETFs, commodities, futures, foreign exchange (FOREX) and currencies.
Day traders are often experienced traders and understand the buy and sell signals that the market(s) they are trading in are sending to them. While some traders may do an occasional day trade, the SEC rules classify someone as a pattern day trader whose brokerage account contains four or more day trades within a five day period. By this we mean a buy and sell transaction on a security in the same trading day.
For those who decide to engage in day trading, it is critically important to have a day trading platform that meets their needs and that offers solid trade execution and cutting edge features. Here is a look at some of the best day trading platforms and the attributes that define a solid platform.
What to look for in a day trading platform
In deciding on the best day trading platform for your needs, you will want to consider a number of factors. These may vary a bit depending upon the type(s) of securities that you will be day trading. Some attributes to consider include:
- Investment or account minimums required to trade or to open an account.
- Trading tools. This may involve charting capabilities or other tools to help you with your day trading efforts.
- Assets available for day trading. This can include stocks, options, commodities, currencies and others.
- Costs, including any transaction fees and account fees.
- Simulated trading capabilities. Many day traders like to see simulated results of a potential trade before placing it.
- Margin interest rates. While there are set rules regarding the amount of equity a day trader must have based on their day trading volume, different platforms charge differing rates of interest on margin loans.
Best day trading platforms
Here is a look at some of the top day trading programs for traders to consider.
Interactive Brokers is considered by many to be the best online broker for day traders.
Interactive Brokers offers a robust platform for day traders. Interactive Brokers main attributes include:
- Their powerful Trader Workstation platform which offers a number of features for traders.
- They offer very reliable trade execution.
- Low commissions and fees.
- Margin interest rates that are among the lowest available.
Their Trader Workstation platform offers high quality order execution plus several other notable features. These include:
- The ability to set customizable price alerts and watchlists
- Sophisticated charting tools
- Advanced order types
- Traders have the ability to stay on top of the latest news surrounding their positions via Reuters, Dow Jones and other sources.
Pros and Cons of Interactive Brokers include:
- The Trader Workshop platform is very robust and offers a number of solid features.
- They offer highly reliable trade execution.
- Interactive Brokers offers low commissions and fees as well as low margin rates.
- Customer service can be difficult to reach at times.
- The IBKR Pro option carries a monthly fee.
- Their tiered pricing plans are complex and can be difficult to understand.
TD Ameritrade is best for new day traders due to their extensive educational resources, recognized as the best available for new and experienced day traders. These education resources include comprehensive courses, videos, articles on the site, webcasts and some live events for day traders.
They offer a tool called paper trading that is an excellent way to test your trading strategy, The paperMoney simulator on their thinkorswim platform allows you to test your day trading strategies in a live market environment without actually risking any money. There are scanners on the platform that screen for stocks that might be of interest to you when you implement your trading strategy.
For live traders, TD Ameritrade offers what they call advanced order routing technology, this enables them to fill the majority of trade orders at a better price than originally quoted. Likely due to their size, TD receives payments for order flow, direct routing of equities is not currently available.
There are several pros and cons of the TD Ameritrade platform for day traders:
- A wealth of educational resources for newer day traders.
- The thinkorswim platform is free to use.
- Paper trading is available.
- No direct access trading for stocks.
- Some of their fees are higher than many of their peers.
- They do not offer fractional share trading.
When it comes to day trading, the speed of order execution is a key component for traders to consider. Lightspeed has worked hard to ensure their trade execution is among the fastest available. Beyond this they focus on providing traders with updated market data as quickly as possible. Their focus is on professional and institutional traders.
Lightspeed is best for best trade execution among online brokers.
The Lightspeed platform has been stripped of most frills to focus primarily on data and order execution. The platform is highly stable and very customizable. The site’s technology and features are designed to enable traders to take advantage of market opportunities with lightning speed.
Timely sales data and level 2 quotes are available for both stocks and options. The platform has a short locator feature that can help traders determine if a stock can be easily borrowed for short trading.
Lightspeed is a direct access broker, allowing orders to be routed to over 100 trading destinations including exchanges, market makers and dark pools. Orders can easily be configured on the trader’s keyboard for efficient execution with specified hot keys.
The Lightening Speed platform has several pros and cons, including:
- Fast and reliable trade execution.
- Powerful scanners that are geared to day traders.
- Dependable customer service.
- High account minimums.
- Limited educational resources and materials.
- Relatively high commissions and fees.
TradeStation is best for those day traders looking for tools to help them develop their trading strategy.
TradeStation has long been known for the platform’s powerful tools that can help traders develop trading strategies and allow them to back-test those strategies to give them a good idea of how they might work in a real market environment. These tools allow traders to generate buy and sell price alerts for the securities they are looking to trade.
The platform contains a wealth of historical data that allows traders to draw from up to 50 years of data for back-testing on some securities.
The platform offers EasyLanguage, a simple programming language that can be used by traders to create their own trading indicators, trading alerts, strategies and custom trading applications in plain English.
TradeStation has several pros and cons.
- Excellent strategy development tools for day traders.
- The site offers excellent training and educational materials for day traders.
- Very low trading commissions.
- This site has been around for a long time and is very established.
- They receive payments for order flow which could cause your trades to be more expensive and less advantageous than with a platform that does not receive payment for order flow.
- There is a minimum $2,000 minimum balance for the TradeStation desktop platform.
- Customer service can be inconsistent.
Cobra Trading is the best day trading platform for both short selling and for customer service.
Cobra’s customer service offers prompt responses via phone, email or chat. Unlike a lot of platforms, there is no need to navigate a maze of online menus to reach a live customer service representative.
The human operated chat function is convenient to use and is staffed by licensed professionals.
Cobra’s day trading platform, TraderPro, offers a number of advanced charting capabilities. TraderPro features level 2 quotes (real-time trading information), hot keys and a stock locator to help traders find shares of stocks too short.
A downside of the platform are the fees. Unless you trade in excess of 200,000 shares monthly, there is a $100 monthly fee for the TraderPro platform.
Cobra is geared towards the needs and requirements of professional day traders in trading stocks and options. They also offer futures trading through the platform’s Venom Trading arm.
An area where the Cobra platform stands out is in facilitating the ability of day traders to sell low priced securities and penny stocks short. Most other brokers populate their list of eligible stocks for shorting with larger, highly liquid names. This often excludes low priced and penny stocks which are popular with day traders looking to short highly volatile securities.
The Cobra Trading platform connects to a number of securities brokers where users of the Cobra platform can locate shares to borrow for short sales, including shares of securities that can be hard to find.
Cobra has several pros and cons.
- Multiple sources to help traders locate shares to borrow and sell short.
- Solid customer service.
- Competitively priced trade commissions.
- Calls for phone support that are answered quickly.
- Free broker assisted trades.
- Customer service reps who are knowledgeable and well trained.
- Support is not available 24/7.
- High minimum deposits.
- Significant platform fees.
- Traders cannot access international markets.
Direct access brokers vs. brokers selling order flow
Direct access brokers send orders to buy or sell directly to the exchange where they will be executed. This generally leads to faster trade execution which can be a critical factor for a day trader.
Direct access brokers allow traders to have their orders routed directly to specific exchanges, electronic communications networks (ECNs) or market makers in a particular security. Direct access brokers tend to place a higher emphasis on order execution than on features like research or fundamental analysis capabilities.
Direct access brokers cater to very active traders who place a high value on precise execution and access to liquidity.
Direct access trading is important to day traders for several reasons.
- Direct access brokers allow day traders to execute traders extremely quickly as compared to online brokers who use intermediaries to execute trades.
- Direct access brokers generally offer advanced trading platforms to help traders facilitate traded execution.
- Direct access trading provides traders full control of their trading on various markets.
When looking for a direct access broker, traders should consider several factors.
- The trading platform. Look for a platform that offers highly specialized features such as programmable scanners, programmable routing modules, algorithmic capabilities and hot keys.
- Routing. The routing capabilities help ensure access to more liquidity and markets which is a top priority for day traders. This offers access to dark pools, specific exchanges and ECNs.
- Pricing. It’s important to understand all pricing and commissions connected with any broker you are considering. Does the platform offer volume discounts?
Brokers that offer direct access trading for day traders include:
By contrast, brokers selling order flow do not send your trade directly to an exchange for execution, but rather they route the order to another trading firm who pays the originating broker for this trade. This was a practice that is said to have originated with Bernie Madoff and his firm prior to his arrest and prosecution for widespread fraud.
Firms that engage in this practice are required to disclose the fees earned from selling order flow on a periodic basis.
Payment for order flow can be a major source of revenue for brokers using this method. Robinhood is an example of a brokerage firm that makes a significant amount of revenue from this practice. TD Ameritrade (on their basic platform), E*Trade and Charles Schwab also make significant revenues from this practice.
The best way to avoid the delays and any added costs of payment for order flow is to day trade through a direct access broker.
The risks and rewards of day trading
Day traders incur a lot of risk, but successful day traders can reap rewards as well.
The risks include:
- Significant financial loss. This can be especially true for new day traders. Markets move rapidly and even the most experienced day traders can get caught on the wrong side of this price movement.
- Day trading takes a significant time commitment. Day traders who do not put the time in risk losing money by being caught by surprise price movements, especially in a position that was not closed out in a timely fashion.
- Day trading can involve margin, if the trader experiences losses this debt can compound those losses.
- Many tout easy profits as an attempt to get day traders to use their services, this can lead to losses for traders who are not prepared to properly day trade.
- Hot tips from newsletters and other sources abound, these tips are often more profitable for the source versus the day trader.
- It’s important to use a reputable trading firm with best execution, using one that isn’t can be costly to your day trading profits.
The potential rewards include:
- Day traders avoid risks that can occur for stocks and other securities based on news that happens overnight when markets are closed. This can cause securities to open markedly lower the next trading day.
- Successful day traders who are experienced and who have a system that can consistently be executed and maintained, can reap tremendous benefits as a day trader.
Day trading is not something to dabble in. Successful day traders understand the potential risks and rewards and do the needed preparation upfront to help ensure their success. This includes doing their homework and selecting the best day trading platform for their needs.