How To Choose The Best Day Trading Broker?
By Galen Woods ‐ 5 min read
A step-by-step guide to help you choose the best day trading broker for your trading needs. Low fees and reliable execution are just part of the equation.
With dozens of day trading brokers flashing their advertisements at you, it’s easy to get overwhelmed by the options.
How do you choose the best day trading broker? How do you even start?
This step-by-step guide will show you how to choose the best day trading broker based on your requirements.
1. Decide what is necessary
Absolutely necessary. Choose one or at most two services/features that your day trading broker must absolutely have.
Focus on the essential feature to help you cast a wide net at this stage. After you decide on the critical feature, search the internet search to get your first shortlist.
For instance, you plan to trade futures. So you are looking for a futures broker. (Search term: “futures broker”)
Or you bought a Ninjatrader life-time license, and you must use Ninjatrader. (Search term: Ninjatrader broker, or refer to this list of brokers.)
More examples of search terms are options broker, forex broker, Multichart futures broker, Asian futures broker".
After getting the search results, you are ready for step 2.
2. Visit broker websites and compare fees
For each broker, visit its website and verify that the broker offers your must-have feature.
Next, record the following information for at least ten brokers listed in the search results. The more, the merrier.
- Trading Commissions
- Data Fee
- Platform Fee
- Withdrawal Fee
- Inactivity Fee
- Day Trading Margins (for futures trading)
- Leverage Available (for forex and stock trading)
- Required Minimum Deposit/balance
- Promotions and Fine Print (put this information aside for step 5)
These are standard brokerage information you can use to compare brokers easily.
Use commissions and fees as your primary consideration because commissions can quickly add up for day traders. So, the best day trading broker should offer bargain commissions.
Select the brokers with the lowest fees and commissions, and cut the list down to around five brokers.
3. Conduct basic due diligence
Due diligence is a tedious step.
But it is also an essential step. You need to check if the brokers are regulated by the authorities.
There are three tools for performing necessary due diligence on US brokers.
- National Futures Association (NFA) BASIC (futures and forex)
- Financial Industry Regulatory Industry (FINRA) BrokerCheck (stocks)
- Commodity Futures Trading Commission (CFTC) Financial Data for Futures Commission Merchants
Using these tools, you can get important background information of each broker and past regulatory actions taken against the broker.
For non-US brokers, you will need to get this information from the local financial regulatory authority.
Unregulated brokers are a familiar prelude to scams, frauds, and bankruptcy. You should never deal with any unregulated broker.
4. Investigate further
Our focus in this step:
- Quality of trade execution
- Customer service
- Technical support
These are areas of concern for day traders. However, we can only find out about these areas from other clients of the brokers.
Fortunately, there are dozens of forums with fellow day traders. Look through them for reviews of the day trading brokers on your shortlist.
Trading Setups Review has a useful search tool that covers 27 day trading forums.
Take your time to read what other traders say about the brokers and ask questions on forums. However, keep an open mind and be skeptical of what you read. It is not uncommon for traders to blame their broker for their trading losses.
5. Decide and rank
Finally, it is time to decide. Based on your research on the day trading brokers, and their current promotions (from step 2), determine the brokers that have won your heart (and brain).
Keep at least two on your list, or keep all of them if you wish.
Next, rank them in order of your preference.
6. Obtain a trial from the day trading broker
Starting with the first broker on your list, ask for a trial account.
During the trial period, assess the level of support given by the broker and the features of their trading platform. Ensure that you can execute your day trading strategy reliably with the broker.
After the trial, if you are happy with the broker. You can move on to step 7. If not, move down your shortlist and get a test account from another broker.
7. Fund your account
Fund your account, but start small. Put in the least amount that allows you to implement your day trading strategy.
If everything is well and once your trust level with your broker increases, consider depositing more funds to support a more substantial trade size.
8. Monitor continuously
You are not done with choosing the best day trading broker. It is a process, and not a goal.
What is good today might be a disaster tomorrow. In your live trading, continue to monitor your day trading broker for any red flags including technical failure, lousy customer service, or regulatory action taken against them.
Don’t forget to put up a Google Alert on your broker to keep an eye on any developments. The Google Alert will find the latest online updates about your broker and deliver them to your email.
Also, learn what to do if your day trading broker goes down.
With this 8-step guide, you will know exactly how to find a broker that best suits your day trading needs.
How did you find your broker? What was important to you? Share with us by commenting below!
Image credit: Dwight Burdette (Own work) [CC-BY-3.0], via Wikimedia Commons