How Do Day Traders Use Online Brokers

How Do Day Traders Use Online Brokers?

Day traders may place their trades manually, often from a chart, or set up an automated system that generates orders on their behalf. Fundamental data is not a concern, but the ability to monitor price quotes, price volatility, liquidity, trading volume, and breaking news is key to successful day trading. 

Day traders often prefer brokers who charge per share (rather than per trade). Traders also need real-time margin and buying power updates. Each broker ranked here affords its day-trading customers the ability to enter orders quickly by customizing the size of trades and turning off the trade confirmation screen. We sought brokers that allow traders to place multiple orders simultaneously, designate which trading venue will handle the order, and customize trading defaults.

What Should You Consider When Choosing a Day Trading Platform?

A key consideration for day traders is trading platform quality, which can impact things such as execution speed and price quotes. Day traders, especially those who trade using their own algorithms, need flawless data feeds or they risk entering orders based on errors in the data. In an environment where high-frequency traders place transactions in milliseconds, human traders must possess the best tools. Most brokers offer speedy trade executions, but slippage remains a concern. Traders should test for themselves how long a platform takes to execute a trade.

Commissions, margin rates, and other expenses are also top concerns for day traders. Even if a day trader can consistently beat the market, the profit from those positions must exceed the cost of commissions. For a high-volume trader, commission costs can easily run into hundreds or even thousands of dollars per day. Traders can check these rates by contacting the broker or checking the broker's website, but most offer special rates for highly active day traders.

It is also important for day traders to consider factors such as customer service and the broker’s financial stability. Customer service is vital during times of crisis. A crisis could be a computer crash or other failure when you need to reach support to place a trade. The best brokers offer dedicated account representatives for highly active day traders to assist in this regard. 

The financial strength of the firm is also important since small brokerages can and do go out of business, but the main player in whether or not you can recover your assets is the clearing firm. Take a look at FINRA's BrokerCheck page before signing on with a small firm to make sure it has not had claims filed against it for misdeeds or financial instability.