Professional traders operate in a world with little room between success and failure. Having the best platform for their needs can be the difference between heavy losses or handsome profits. As day trading is modelled against professional trading, retail day traders must get the best tools and execute the best strategies they can.
Day traders make their money from entering and exiting several trades per day. The online brokerages with which they work must be able to guarantee fast and reliable execution at low commissions, with responsive customer service as part of the package.
These onerous requirements rule out a great many run-of-the-mill brokers. For the remainder, it requires a careful analysis of their strengths and weaknesses to be able to make a firm recommendation on which are the best brokers for day trading.
In this article, we will explain day trading in more detail, expand on what traders need to look for in a good day-trading broker, and include a list of the best online brokers for day trading.
Day trading is when retail traders buy and sell a security multiple times on the same day to make profit from short-term movements. They deal in securities like FOREX, bonds, stocks, and exchange traded funds (ETF). To qualify as day traders, those who practice this form of investment must exit all their trades at the end of a daily trading session.
Some traders are discretionary traders, which means they watch market conditions and decide when to enter and exit trades based on their sense of whether they will be successful. Other types of day traders deal more systematically, automating strategies along a set of predetermined rules.
Day trading originated in Wall Street, where highly skilled professional traders travelled to a stock exchange and traded all day before closing their positions by the final bell. However, with the growth of online brokerage firms, backed by powerful platforms and instantaneous newsfeeds and low commissions, home-based traders can now replicate the day-trading format popularized by professional traders.
How Does Day Trading Work?
Day trading can make you a lot of money if you do it right. Traders who are new to this type of trading are in for a bumpy ride if they do not approach it with a well-thought-out strategy.
The speed of the market and the sheer number of transactions you need to make day trading worth your while mean that it is vital you have a strong plan.
Normally, long-term investors try to buy low and sell high as a basic concept. It may take several days or weeks for their trades to reach a point where they are content to close them. Some longer-term instruments, like bonds, require that you hold on to them for months.
With day trading, investors look to opportunistically profit from daily price movements in any direction. Relying on intraday price fluctuations to make them money, they rely on rapid order execution of instruments that trade in high volumes and are characterized by high volatility. The FOREX market and the stock market are perfect examples of this.
Day traders use several tools at their disposal to make the most of each trading day. One example is how they use leverage to profit from movements on markets. Here are some other key characteristics of day trading:
Day traders are normally well educated and well capitalized.
Day trading requires traders to be highly disciplined and objective.
Day trading requires a sound strategy informed by technical analysis.
Day trading is certainly an exciting field in which to play. Yes, the potential profits are a major draw, they always will be, but many traders appreciate the thrilling cut and thrust of making deals in a highly liquid and volatile space.
One aspect of which day traders must make the most is using the news to their advantage. For this reason, many traders watch scheduled announcements of corporate earnings, economic updates, or interest rate changes with great attention. They come to understand how market sentiment affects market psychology and they use it to their advantage. Some of the most common trading strategies day traders use are:
Scalping: This is where traders attempt to make small profits from miniscule price movements throughout the day.
High-frequency trading (HFT): Using advanced algorithms, traders look to make the most of short-term inefficiencies that exist in every market.
Range trading: This is a strategy where traders identify a range of fluctuation outside of which they believe an instrument will not stray, and they only trade inside that range.
News-based trading: By watching important news updates, traders can anticipate if markets will be buoyed or deflated by important performance or policy updates.
How to Choose the Best Online Broker for Day Trading FOREX
With so much choice out there, it can be difficult to decide on a broker with whom to work. As you may have noticed by now, day trading requires you to perform due diligence and give the entire process your full attention. It is a fast-moving and highly-volatile trading environment in which you need to be switched on at all times. There is nothing passive about day trading, and you cannot delegate the selection of the ideal broker to a broker rankings page. To give yourself the best chance of success, here is list of factors that can help you choose the best online day-trading FOREX broker:
Commissions and Fees
As we have just mentioned, the fee question in day trading is a tricky one. There is no industry uniformity in the makeup of fees, so ascertaining the most cost-effective broker requires some research.
Day-trading broker platforms must be robust and durable. With lightning-fast trading conditions, your broker’s platform must have high uptime and low latency.
US day traders are saddled with a high minimum of $25,000, but day traders in other areas can choose their broker based in part on account minimums.
There is no getting around the importance of fast execution in day trading. A broker with mediocre execution speed places the trader at a significant disadvantage in the competition with algorithmic trades and professional traders.
Tools, Education and Features
This applies to traders of all instruments and it is no less important to day traders. You will need to have access to well-developed tools, strong educational materials, and features that give you an edge in this competitive space.
There are often restrictions on promotions, with Europe being a prime example where promotions are discouraged; but if your broker operates in a jurisdiction where you can get an attractive offer, it may be something to consider.
Traders will always need access to a responsive customer desk, preferably one that operates across many time zones and offers multilingual support.
Day trading requires access to high-quality technical tools. Technical support, not to be confused with general customer support, is required when advanced tools and features malfunction.
Best Online Brokerage for Day Trading 2023
Take a look at our top 7 list of online brokers. 1. FXDD 92.15 - Best Overall Broker 2. ICM Capital 91.10 - Best Deposit and Withdrawal Broker 3. XTB 85.55 - Best Customer Service Broker 4. IG 85.45 - Best Regulations Broker plus Convenient Platform 5. Saxobank 80.09 - Excellent Private Trading Platform 6. CMC Markets 80.07 - More than 9,000 Assets 7. Think Markets 80.05 - Aimed at the Audience of Traders
FXDD received the highest score in our survey (92.15). One of the first FOREX companies to offer a credit card in order to allow traders to withdraw their profits, this New York-based company has the UK's FCA license under its belt. It also has a rich portfolio of assets, offers a relatively low spread, in addition to the MetaTrader4 (MT4) platform. Further, it has excellent and fast customer service, and also offers traders a variety of ways to deposit money.
ICM Capital is considered the industry leader in deposits and withdrawals, whereby each withdrawal does not take more than five business days. Moreover, the company offers its customers a handy credit card to withdraw their profits, in addition to enabling customers to use various deposit methods. The company, which is licensed by the UK's FCA, has several branches around the world. Among other things, it has a rich portfolio of assets, especially stocks, offers a low spread, as well as the ability to use MT4.
What distinguishes XTB is the fact that it offers the best customer experience among all the companies we have surveyed. Indeed, it boasts the fastest response rate from all the companies under investigation. This is especially relevant, since the market is always on-the-go, and so you need to act fast. XTB offers lots of asset classes, as well as the ability to use the MT4 trading platform. Finally, it maintains a relatively low spread, which is suitable for quick deals.
IG is arguably the best broker when it comes to security and trust, boasting, as it does, licenses from 10 regulatory bodies, including the all-important FCA from the UK. The company is also a bank and is a publicly traded company in London. It is known for offering more than 10,000 asset classes of currencies, commodities, future contracts, ETFs, indices, cryptocurrencies etc. Further, it has its own state-of-the-art trading platform and offers a relatively low spread.
Saxobank is considered one of the best investment banks in the area of financial markets and currencies, as it offers the very best trading platform and tools from all the companies we have reviewed. Meanwhile, its spread is very low and, as such, suitable for short-term deals; and it offers a large number of asset classes, including currencies, commodities, indices etc. Finally, its customer service is excellent and very responsive to traders' needs.
CMC Markets is thought of as one the best companies, offering some 9,000 asset classes that encompass currencies, commodities, indices, cryptocurrencies, bonds and stocks. The company offers a relatively low spread, the MT4 platform, and fast customer service. It is most suited for traders looking for diversity in asset classes.
Originally founded in New Zealand in 2010, and moving to Australia within the space of their first two years, Think Markets is a global online brokerage focusing on FOREX and CFD trading. In addition to a range of major and minor currency pairs. Think Markets has an array of CFDs on offer. This includes indices, as well as hard and soft commodities.
For all the glamor of day trading, there are many more unsuccessful day traders than there are successful ones. Technology is making it harder for day traders to succeed. In the early days of this type of trading, new entrants to the market could get by with “point and click” trading strategies based on introductory research and good fortune.
Today, algorithmic trading, driven by boundless computing power, means that humans are up against machines. In the US, algorithmic trading accounts for about 60% to 73% of all equities trading. Based on economics research from Yale University, it is an accepted number in the industry that only 1% of day traders consistently make money.
Not only are retail traders up against algorithmic trades, but they are also facing a congested field of highly capitalized and experienced professional traders. These traders all have the execution speed, trading capital, technology and software knowledge to succeed.
If algorithms and professional traders are taking advantage of inefficiencies in the market, there is less room for inexperienced traders to get a piece of the pie.
Another risk of day trading is leverage. It is a rewarding tool when used well, but when new traders make unsuccessful bets on high leverage, they stand to lose a lot of money. Sometimes, new traders simply do not have enough capital. Inevitably, there is a learning curve to day trading that includes traders making losses early in their careers. This is normally where designated risk capital comes in handy, as traders can write off these funds and put the losses down to experience. However, if traders don’t have enough risk capital, then the stakes rise very quickly once they start trading, causing them to lose money on irrational trades.
How Do You Start Day Trading?
The best way to start day trading as a novice is to first sign up with a broker that offers simulated trading. By using a demo account, you can improve your trading skills and refine your strategies even before you place a cent of real money on the line.
This is also the time to learn all the features of your broker’s platform. Remember that day trading is characterized by fast and high-volume transactions. You will not be able to orientate yourself around your broker’s platform while in the act of trading. Therefore, you need to take the time to practice first.
It is a good idea to document your progress. Start by writing down the main elements of your trading strategy so you can internalize them by regularly referring to the strategy. Also, keep a running record of your trade successes and failures week by week. Sometimes, seeing how you are doing in black and white can entrench some of the lessons you need to take home.
When you eventually start trading, it is always good advice to start small. Investment experts often repeat the 1-2% rule – never risk more than a small amount of your portfolio on any one trade. Learning to walk before you can run will hold you in good stead for later.
What to Consider When Choosing a Day-Trading Platform?
Day traders can choose to place their trades manually or they can set up an automated system that enters trades according to a predetermined set of rules. It is essential that traders have ready access to price quotes, liquidity, trading volumes, volatility and major breaking news. Each of these pieces of data adds an essential element to a trader’s arsenal.
Other key features include access to real-time margin and buying-power information. Traders must be able to enter as many simultaneous orders as they wish easily, and quickly. This is down to how responsive and developed the broker’s platform is. Platform quality impacts important such aspects as execution speed and price quotes. Day traders who make the decision to use algorithmic trading need an unbroken feed of high-quality market data because entering trades on incorrect information is a risky business.
Fast execution is a non-negotiable for day trading brokers. In an environment where trading algorithms can enter trades accurately in milliseconds, humans need the best tools just to keep up. Traders who operate slowly, either by their own inefficiencies or the inefficiencies of their broker, are vulnerable to slippage. This is known as the difference between the expected price of a trade and the price at which the trade is executed. Slippage happens a lot during periods of high volatility, which is prevalent in FOREX, crypto and stocks trading.
Customer service is another crucial factor for which to look when engaging with a broker. As we have mentioned before, while it is best practice to do some simulated trading before you start the real stuff, some traders skip this part. In their excitement, they enter the market without the necessary preparation. This is when good customer service is useful as traders might need urgent support.
Another factor for traders to heed is the financial stability of their broker. It is understood that having access to excellent liquidity is non-negotiable in such a fast-moving market, but the broker itself needs to be financially stable to run its operations. This is where being under the auspices of a good regulator will ensure that only financially sound brokers that are run by qualified people make it to the market.
Day Trading Broker Fees
Fees are an important consideration for all traders, not the least day traders. Be it commissions, margin rates or other fee types, high-volume traders end up having to pay substantial amounts in fees. However, comparing day trading broker costs is not an easy task as many brokers do not charge traditional trading fees, which is one of the best ways to directly compare broker prices.
It might not be what an under-capitalized day trader wants to hear, but the quantum of fees payable is often less important than the “fee versus value” equation. There is no formal equation to measure this, except to say that investors need to tally what they are getting for the fees they pay. This involves undertaking fundamental research, as opposed to simply comparing fees on a table.
Some of the fees a broker can charge include the following:
Stock Trade Fee (per contract).
Stock Trade Fee (per share).
ETF Trade Fee.
Mutual Fund Trade Fee.
Options Trade Fee (Base fee).
Options Trade Fee (Per contract).
Futures Trade Fee (Per contract).
Broker Assistance Trade Fee.
Commissions are, broadly speaking, no longer a concern for day traders as the industry has moved to a zero-commission model. However, minimum deposits must be considered. In the US, the stipulated minimum deposit is $25,000, but traders in Europe and other regions can get away with much less.
It is important to note that not all brokers charge the same fees for the same service, let alone call them the same thing. Even if they have significant fee overlap, brokers may be more expensive on one fee line and cheaper on another. It is important for traders to conduct their own research while paying attention to the fee versus value equation.
The Bottom Line
Choosing the best day trader will come down to how they measure up in such key areas as execution speed, liquidity, reliability and financial stability. Day trading can be highly lucrative, but it takes considerable practice and application to reach a level where you are making consistent profits.
It is fair to say that choosing a good broker will not be the sole reason you succeed, as you still need to do your part as a responsible, consistent and studious trader. However, choosing the wrong broker can go a long way to setting you up for failure. If you do not have fast execution speeds, quality market data and good liquidity, your chances of success will dwindle.
The team at Arincen collected over 120 pieces of data covering in excess of 100 licensed FOREX companies. Data collection was done in three ways:
Other Websites that have ranked FOREX companies.
A survey questionnaire (referred to here as Survey “1”) we had sent to the companies invited to participate in the exercise.
We have identified 12 criteria for our assessment, each containing several aspects and carrying its own relative weight. These include licensing, deposits and withdrawals, number of assets, day trading, etc.
Afterward we validated the data by:
Registering with FOREX companies as a secret shopper and/or as Arincen.
Survey number “2,” in which we asked these companies’ customers for important feedback and past experience.
The next step saw us evaluate and rank each company, relying on the hard work of 15 Arincen employees. We were very careful in ensuring the most accurate assessment possible, including taking into account different languages, as well as the various mobile-app operating systems, e.g., Apple, Samsung etc.
To add credibility to our research project, we sent a third and final survey (referred to here as Survey “3”) to enable participating FOREX companies to evaluate our own research and whether it accurately reflects the realities on the ground. We were fortunate enough to receive a mark of 9.9 out of 10! We have kept to a minimum the margin of error, which stood at a measly 1%. To learn more on how we came up with the evaluation, please click here.
What is the Best Way to Learn about Day Trading?
Starting with a demo account is the way to go. With this approach, you can practice without fear of losing real money. Simulated trading is an important way of getting to know not simply how you will execute your strategy, but it familiarizes you with your chosen broker’s platform.
Another important advice is for you to make use of the educational resources on your broker’s Website. Almost all brokers have significant educational repositories that give you as much of a theoretical grounding on day trading as you need.
What are the Risks of Day Trading?
You could suffer heavy losses. All trading activity comes with risks, but day trading contains significant risks because of how fast trades open and close, the effect of leverage, and the fact that in some jurisdictions you must be well capitalized to even qualify for an account.
You can mitigate these risks by educating yourself on day trading before you start, practicing on a demo account, and never risking a significant amount of your capital on any one trade. Very few day traders consistently make money. The vast majority lose money. You can improve your chances of success by working rationally to a well-researched plan.
Is Day Trading Legal?
Day trading is legal. Even in the US, which has imposed tight restrictions on how pattern day traders can operate, the practice is legal. US regulators mandate that you retain at least $25,000 in equity in your account.
How Much Money is Needed to Day Trade?
Besides the US Securities and Exchange Commission (SEC) mandating that you keep no less than $25,000 in your account as a day trader, there is no set amount you need to have to day trade. Some jurisdictions do not require a minimum balance at all. As always, you are advised to only risk the money you can afford to lose.
What is Margin?
Margin is when you use your broker’s money to place trades. When you trade on margin, you stand the risk of suffering heavy losses. Margin trading is a risky exercise and you need to know the pitfalls before you start trading on margin.
What Should I Look for in an Online Trading System?
It is vital to have access to well-developed day-trading software. Watch out for commissions of any kind as these can be debilitating in the long run. You also need to place a premium on execution speed. Your online broker must be reliable and offer fast execution on a platform with high uptime.
Which Stocks are Best for Day Trading?
This is the precious information that many thousands of traders are trying to uncover every day. The instruments you end up day trading are a matter of personal choice informed by market information and several other factors.
Suffice it to say, there are a few key factors you need to keep in mind when day trading. This type of trading is best suited to instruments that are highly liquid, volatile and can be traded in large volumes.
Can you Day Trade on More than one Platform?
Yes. Some traders use multiple platforms at the same time. While day trading is an active trading form that requires dedicated attention, these traders manage to keep a steady eye on their trades across more than one platform. The reasons for doing this include needing a backup account in case of outages, or because one platform contains features the other does not. It is mainly for well-capitalized traders as they need at least double the capital a normal trader would need.
Is Day Trading Worth the Effort?
The cold hard truth is that very few traders do so profitably over time. In today’s trading landscape that includes sophisticated algorithms powered by advanced computers with the heft of large hedge funds behind them, the average day trader has a slim chance of getting a meaningful piece of the pie.
Any market inefficiency gets swept up by bigger and more professional parties. Further, gullible traders end up paying a lot for peripheral ways to increase their chances of success. These include chat-room memberships, educational courses and information subscriptions. That said, there is always a percentage of day traders who are successful, it just takes experience, application, capital and skill.
What is the Best Platform for Day Trading?
This article is dedicated to breaking down the most crucial factors to look for when engaging with a day-trading broker. In short, brokers must be regulated, well-established and well-capitalized. Crucially, they need to have advanced platforms that place an emphasis on speed of execution, providing market news while giving traders access to excellent liquidity. Fees are also a consideration that every trader must factor into their decision making.
Adrian Ashley is a seasoned business and finance writer. With a corporate career spanning over 20years, he has developed deep experience in such diverse areas as investing, business, finance,technology and macroeconomics. He is passionate about captu...