How to Choose Day Trading BrokersDay trading brokers are your conduit to the stock market where you conduct day trading activities. Your broker aggregates several small trades (made by you and her other clients), and earns his income off of a commission from each sale. Much the same way that a real estate broker adds value to real estate transactions with their knowledge of the market and products and regulations involved, your day trading broker adds value to your day trading expertise by their knowledge of day trading rules, and their ability to lower the cost of transactions. Even so, there are a lot of considerations to juggle when choosing a day trading broker. Your financial freedom depends on making these decisions wisely; while a good broker can't really make you more effective - that's up to you and your research on what stocks you're day trading - a poor broker can greatly hinder your ability at the markets to act quickly, or can charge so much for their services that it's not cost effective to use them. Economic IssuesBrokers have to charge a commission to make their income; they may charge a per trade transaction cost. Doing high volume, high volatility trades can have those transaction costs mount rapidly. While you should do price comparisons, you should also compare the services you get and the information you get for those transaction fees. In many ways, a transaction fee serves as a break, a reason to step back from the flurry of trading and consider a move.Do watch out for hidden costs, and remember that you're paying for execution and information. A good broker will also have a semi-automated system; these should not cost extra monthly fees for access. An automated system saves you work and it saves your broker a lot more work; you should not be paying for their 'special super secret software'. Lastly, look at how easy it is (or isn't) to get funds into and out of your account. Some brokerage houses put a 48 hour time limit on withdrawals or refuse to take transfers of funds in past a certain time of the day; this is mostly a holdover from pre-electronic banking days. Even so, it's usually a good sign to take your business elsewhere. Advisory versus Execution OnlyWhile some advocate only using an execution only broker, we contend that a broker that offers advice is useful. It's very easy to get caught up in the moment. Good day traders have research and instincts and gut checks on what's going down with their portfolio. A broker can augment that with information about the segment of the market her transactions are in, and can often provide information that's already pre-packaged.Yes, execution only day trading brokers have lower transaction fees, but you're paying your broker for their knowledge of the day trading rules; giving up the information that they can provide just because they charge for their knowledge is like refusing to let a doctor treat you because he charges for his knowledge. Technical IssuesDay trading for common investors happens because of high speed internet connections and good data capture and processing software, able to make charts of trends. Fair warning: If you're not a math-person, trying to be a day trader will be a painful and unpleasant experience.
You have to be able to read charts and statistical information; your day trading broker can provide you with information, but you still need to make the judgment calls. Your broker will have some sort of software that you report your trades to them in. Make sure you understand it and are comfortable with it. Day trading means being inundated with information, and the skill of trading comes from managing what's important in a short time frame. That software is there so you can make informed decisions, but it can only help you if you understand it. Reputation and SizeWhen it comes to brokers and brokerage houses, bigger is usually better. The broker needs to have adequate funding to execute your trades. Look for how long they've been in business, look at who their clients are. Be sure to get referrals and read them. Reliability and access is important; you want to be able to execute your trades in a timely fashion and that means your broker has to be there to take receipt of the trade order when it comes in.Return from Day Trading Brokers to The Home Page
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