Choosing the best stock broker can seem overwhelming for traders. There are so many options and it can be difficult to decide which one is best for you. Here’s a secret – the broker you choose is both significant and insignificant. What does this mean?
Many new traders get caught up in the decision making process and spend hours researching different stock brokers. They read tons of reviews and ask other traders for recommendations. The truth is, if you are new to trading, your broker isn’t going to be the determinant factor in your success. Assuming you choose a reputable discount broker like ETRADE, TD Ameritrade, or Schwab, you are going to have access to the tools you need.
Most modern brokers have fair commissions, quality trading platforms, mobile trading solutions, and research tools. Furthermore, these discount brokers tend to have limited account, software, and data fees that can easily add up with more advanced brokers.
Claims that one broker is better than the other are often backed by preference. For example, one trader may prefer ETRADE’s PRO software while another may prefer TD Ameritrade’s ThinkorSwim. Both platforms have their strengths and weaknesses, but one is not objectively better than the other.
While these preferences may be important for experienced traders, they are of little significance to new traders. After all, how can you prefer one platform over another if you’ve used neither? This isn’t to say that new traders shouldn’t do their research and read broker reviews, but there are far more important factors for new traders to focus on (such as strategy, education, starting capital, etc.).
As you begin to get some experience in the trading world, your preferences will evolve and your needs will become more demanding. This is when it makes the most sense to explore other brokerage options.
Best Day Trading Brokers
In most cases, professionals have different needs than casual users. For example, a professional video editor will need a more powerful computer than someone who just wants to check email and browse the web. Traders are no different. Experienced traders have different needs than casual traders and certain brokers are designed to cater to those needs.
Here are a few things more experienced traders should consider when choosing a broker:
Every trader cares about commission fees. Commission fees are the cost of doing business as a trader, and any diligent businessperson will be interested in reducing costs.
Brokers designed for traders tend to have lower commission fees due to their client’s trading volume. Furthermore, some brokers will negotiate even lower rates (often unadvertised) for traders who have high order volume. Before selecting a broker, make sure their commission structure suits your needs. Don’t rely solely on the pricing on the website. If you are a highly active trader, the broker may be willing to negotiate a special rate.
Casual traders tend to enter and exit a trade with two orders (buy and sell). More experienced traders will often scale in and out of positions, matching their position sizes with their conviction. This can become costly if you are on a “per-trade” commission plan, whereas a “per-share” commission plan provides more flexibility.
For example, assume you want to size into a trade 1000 shares at a time, expecting to reach 5000 shares. You will need to place 5 orders.
- Per-Trade: 5 Orders x $5 commission = $25
- Per-Share: 5 Orders x 1000 Shares Per Order x 0.001/share = $5
Note: Most brokers have a minimum price per order so you cannot buy 1 or 2 shares at a time.
These savings can add up over time, especially for traders who trade high volume.
Trading platforms are the most valuable tools for traders. These platforms serve as the “control center” for daily trading activity. A good trading platform will provide traders with access to real-time charts, level 2 data, news, and more. Each individual trader will also have their own unique preferences. For example, options traders will require different tools than news-focused traders and momentum traders will require different tools than position traders.
A good trading platform is defined by a combination of quality and individual preferences. If you’ve decided that a broker has a favorable commission structure, see which platforms they provide access to. Brokers like ETRADE, Schwab, and TD Ameritrade have their own custom platforms, whereas direct access brokers like SpeedTrader, Lightspeed, and Cobra Trading team up with other platform providers like Sterling Trader and DAS Trader.
Platform and Data Fees
Most brokers will provide access to some basic trading tools for free, however most experienced traders have more sophisticated needs. Many brokers will charge a monthly or quarterly fee for the use of their advanced trading platforms. This fee is often waived for clients who place a certain number of trades every quarter, but you should be aware of the costs before choosing your broker. Most brokers will charge a platform fee + data fees for the exchange data you require access to.
Is it worth paying for these platforms? There are two answers to that question. First, if you require an advanced trading platform, there’s a good chance you already meet the requirements for free access. If you do not, it’s time to analyze the cost. If the monthly cost of the platform makes a significant impact on your overall profitability as a trader, you probably don’t need that platform. Instead, opt for a less expensive software until you can justify a more advanced platform.
Short Lists and Locates
If you want to short sell a stock, your broker needs to have shares available for you to borrow. Most casual investors are not very familiar with the process of short selling, therefore most discount brokerages don’t need to keep a broad inventory of stocks to short. While blue chip stocks like AAPL and FB are generally available to short at most brokers, small cap stocks and momentum tickers are rare.
If you’re a short seller, you’ll want to find a broker that has a broader short inventory. These brokers work with clearing firms that carry a larger inventory of shares to short. Furthermore, some of these brokers offer third party locate services that find shares to borrow when you want to short sell a stock (known as a locate). While this may be an afterthought for beginner traders, it can make a HUGE difference for experienced short sellers. Imagine finding the perfect short trade setup only to find out you can’t actually borrow the shares to short.
If short selling is a big part of your strategy, make sure you have a broker that can accommodate you.
Direct Access Order Routing
Many online brokers have started internalizing order flow. This means, when you hit the “buy” or “sell” button, your order is sent to the broker first. The broker then routes the order to an ECN or market maker of their choosing. Direct access brokers give clients the ability to send their orders directly to market, allowing traders to skip the middle man and get faster trade executions.
While customer service may not be the first thought on your mind when choosing a broker, it’s still an important consideration. Problems will always arise in trading and you’ll want to know that your broker has your back. Whether it’s a margin call, platform malfunction, or simple account question, you want to choose a broker that is responsive and helpful.
Good customer service is like insurance. It may seem unimportant when you don’t need it, but the second you do need it, you’re glad you have it. It can be difficult to gauge the true quality of a broker’s customer service until you have some experience with the broker, but you should make sure to test the waters. Does the broker answer your calls and emails? How fast can you get in touch with your broker? The answers to these questions will give you peace of mind and may help you save money if there is ever an issue.
Recommended Day Trading Brokers
As mentioned throughout this guide, there are plenty of great brokers and every trader has unique requirements. One trader may swear by Broker A while another trader can’t live without Broker B. Based on our research, reviews, and experience, these are our top picks. If you have specific question regarding your personal situation, reach out via the contact page.
Direct Access Broker: SpeedTrader
SpeedTrader is a direct access broker that has been around since 1999. They are a broker designed specifically for day traders. SpeedTrader offers competitive commission pricing, extensive short lists, and access to great tools.
What We Like
- Option to choose between per-share and per-trade pricing
- Commissions as low as $2.95 per trade or $0.001 per share
- Multiple trading platform options (SpeedTrader PRO, Sterling Trader Pro, ActiveWeb, and Mobile Platform)
- Extensive short lists
- Third party stock locates
- 25 routing options
- Great customer service
What to Be Aware Of
- Account/Software fees can add up
Discount Broker: ETRADE
ETRADE is one of the most well-known online stock brokers and their quality reputation is well-deserved. ETRADE offers competitive commissions and an array of powerful trading tools. They have great technology in every aspect of the business and a responsive customer service team to back it up.
What We Like
- Commissions as low as $4.95 for active traders
- ETRADE Pro is a great trading platform (for Windows and Mac)
- Great mobile trading platform
- Platform and data is free for active traders
- Great customer support (Knowledgeable and quick to answer the phone)
- Advanced technology for online funding, tax documents, etc.
What to Be Aware Of
- Limited Short Lists
- No Direct Access Order Routing
- Commissions can be pricier than direct access brokers
If you want to consider other brokers, feel free to browse our library of reviews here.