Are you not happy with your broker? Does their trading platform offer limited trading features? If yes, you don’t have to worry anymore. Brokers and trading platforms are two important elements of day trading. So, you have to choose one carefully. Your trading requirements will be different from another trader. Each day trader has a style. Because of this, there is no standard to rank brokers.
Each broker has a particular set of features. You need to select a broker and trading platforms based on these features. You need to compare them and see which firm suits your requirements. In this post, we are going to compare these features for you to choose an appropriate broker. The same goes for trading platforms. We have prepared a comparison list.
When it comes to comparing brokers, there are no standard criteria. The first thing you need to do is tick all your requirements. Each trader has different requirements. You need to know what you want from trading, how you will trade, what you will trade, etc. Here are some things you need to consider.
- Your trading style
- Your needs
- Trading size
- Trading hours
- Financial instruments
- Your needs
Once you have your requirements set. The next step is to compare the brokers. Don’t always run behind cheap brokers. You might not get complete features on their trading platform. Here we will list all the features. You need to compare and choose a broker that fits all your requirements. Here are some key points for comparison.
- Commission rates: In day trading you have to trade many times in a day. So choose a broker that charges less commission. You need someone who will charge less commission for a long time. This will help you to enhance your profit.
- Margin rates: Margin rates help you to trade without capital. So, when you find a trade, where there are higher returns, you can easily use margin to trade with more money. This way you can easily make huge profits without actually having capital. Choose a broker that provides impressive margin rates.
- Fee structure: Check your broker’s fee structure carefully. Many brokers have a fee structure with hidden costs. They will charge for every facility. They will have high withdrawal fees, customer service fees, etc. So, you should always check the fee structure first. Most cheap brokers have hidden costs. Beware of them. They will charge you for everything to make up their fees.
- Minimum deposit: Some brokers need deposits. In order to open an account with them, you have to deposit some money. Choose your broker carefully. There are many brokers who don’t require deposits.
- Trading limit: Some brokers have a daily limit on trading. This is done in order to protect the traders from volatility and manipulation. But in day trading, you don’t need any limits. The limit should be set by you.
- Types of account: Brokers offer different types of accounts to traders. Each account has special features. Interactive brokers provide this service as well. They will offer you an account with less commission, more leverage and other tools.
- Tools: Make sure your trading platform has various tools needed for day trading. You can choose a trading platform who has good technology tools. The tools need to be informative and useful. You should be able to conduct research and analyze the trends with it. You need,
- Live price list
- Detailed charts
- Historical data
Choose a trading platform with good tools and resources.
- Order execution: Order execution is very important. Time is the key in trading. If you want to trade with the right price, you need quick execution. There are slippage concerns in trading. During execution the price changes. You need a trading platform that executes your order quickly. Always check the order execution speed.
- User-friendly: Make sure the trading platform is compatible with your system. Also make sure the trading platform you want to choose is easy to use. It needs to be comfortable while using it. You should choose a compatible and easy to use trading platform. You need an advanced platform if you are a professional day trader.
- Mobile platform: Make sure you can use the trading platform on your smartphone as well. Check the compatibility of the software. Many brokers provide mobile applications. You need to check the quality of the application. Check if there are all the features you need.
- Support: Customer support is very important in day trading platforms. Make sure they have good customer service. You should be able to easily connect with them if something goes wrong. Check if they have 24 X 7 support. Check what facilities they have, i.e. chat support, email support or helpline number. You can call them if you face any technical issues.
- Dealing desk: Make sure they provide you direct access. The order placed should be quickly executed. See how fast they offer execution. Everything needs to be super-fast to avoid re-quotes. You need to grab the right opportunity and confirm your order to get the right price order.
- Attractive extras: In order to attract traders, some brokers offer extra credit. There are many account opening schemes available. They will offer you a little credit if you open an account with them. This can be useful. Choose brokers who provide extra offers to trade.
- Account levels: Some brokers may even have different account levels for special customers. High level account holders get more facilities like data and information. Make sure you choose a broker that offers VIP accounts.
- Returns: There might always be some cash in your account with the broker. You can get returns on this account balance. Some brokers provide 3% to 5% returns while some don’t offer any. Choose a broker that gives you returns on your balance.
- Trading strategy: Make sure you are able to use your trading strategy on that platform. Check if they have automated trading facilities. The broker should have all the facilities for implementing various strategies made by traders.
Now that we have discussed all the comparing factors, you can easily compare the brokers, trading platforms and facilities. Check all the factors and make sure it suits your requirements. Once you get a good broker that works as per your trading style, you can easily take advantage of day trading.
Trading Platform: What is it?
Don’t get confused between brokers and trading platforms. Brokers are individuals or firms. Platforms are software. In order to trade online, you need trading platforms. You can view the price data here. The order placing and execution also happens here. Every broker has a trading platform. You can either use their platform or you can use individual platforms. There are individual trading platforms as well. If you are a beginner you can use the same trading platform provided by your broker. But if you are a professional and experienced trader, you can choose yourself. There are many individual trading platforms. These platforms also connect you with brokers. Nowadays traders are moving toward platforms with enhanced features and facilities. You need to choose a platform carefully. Here we will highlight some features for you.
Trading Platforms: Features
Choose a trading platform with multiple features. You can easily interpret the market conditions and price movements using these features. Check if these features deliver the performance. See if these features are being implemented as promised by the trading platforms.
Access to data
You need market data to know if there are price changes. You need to access all the present data to make your move. Make sure they provide all the present data to you. You also need historic data. It helps you to design strategy and test it. Check if they provide back testing. Not every platform has this facility. It will help you to test your strategy before implementing it.
They provide charts and other tools to traders. You can easily use them to analyse trends and patterns. They also provide other aid like points and indicators for you to read.
Market price can change in seconds. There is only a little time gap between placing and executing orders. In order to get the right price, the order should be quickly executed. Some platforms execute orders within a few seconds. Some who use automated trading, do it in less than a second. Order execution is the main feature of trading platforms.
Nowadays they offer automated trading. By using this you can get orders executed in milliseconds. You can also use the “stop loss” facility. It is an automated feature that stops trading beyond a point to stop making loss. You can also find trading robots. These robots need to be programmed. You can design your strategy and plant it into their system. They will work as per your strategy and trade on your behalf. You can simply relax, while they do the trading for you. All these facilities are provided by trading platforms.
You now have an option to choose your own broker and you can do this by using individual trading platforms. You can explore their features and choose different brokers. They connect you with multiple brokers. Now you can choose an independent broker easily.
You can open different types of trading accounts with brokers. Selecting a broker in the first step. Choosing an account with them is the next step. You need to know the different types of accounts offered by a broker. Normally brokers offer,
- Cash accounts
- Margin accounts
- Managed accounts
- Account levels
You have to choose the right account depending on their features. Your account type depends on several factors like,
- Risk appetite
- Trading time
Here we will discuss different account types. We will also focus on benefits and drawbacks. You will get a clear idea and know which account type to choose.
It is a common account with limited features. You just have to deposit the capital into your account and use it for trading. You can indulge into buying and selling financial instruments with this account. This account is for beginners. You can borrow extra finds. You can simply deposit, withdraw, by and sell from this account. This account is opened by all the brokers. It is a default option. By default brokers open this account for traders.
This account has many benefits. It is easy to use. This account is simple and easy to maintain. It is less risky as there is no margin. You won’t lose more than you have. You don’t have to pay interest on borrowed money. It is a safe choice for beginners.
The major drawback is that you can’t borrow funds. You might easily lose a huge opportunity because of lack of capital. Your returns will be minimum. You will always need capital to start trading. You also have to deposit money constantly in this account. It is very time consuming. You will have to wait for days to start trading again. The funds take time to be deposited in your account. If you are an active trader, this account won’t work for you. Your number of trades will get affected with this.
In this account you can easily borrow capital to trade. Margin allows you to trade even if you have less capital in your account. To secure a good position you need margin. You might face restrictions on margin though. It is done by brokers. Extreme volatility may lead to huge losses. To avoid this, brokers use restrictions on borrowed funds.
Margin accounts have many benefits. The main benefit is that you can pay back the margin anytime. All you need to do is stay within the maintenance requirement. You can return the money as per your convenience. It’s also possible to earn huge returns by securing good positions. The interest rate is very less. You have to pay less interest on the borrowed money. It is less than loans and cards. You can also use your securities as collateral. You need to have a concentrated portfolio for that.
Margin Accounts are more risky. If you have a margin account, you can more than your actual capital. On top of that, you have to pay interest on the borrowed amount. You need to have high risk tolerance in this type of account. You have to check the maintenance requirement as well. It helps to know how much you can borrow. If you are a beginner, avoid using a margin account. It is meant for active day traders.
Now you can easily know which account you want with your broker. Consider three factors while opening an account, i.e. Risk appetite, capital and trading time. You can also open more than one account. Most day traders use this technique for using different strategies.
Regulation & Licensing
Trading has always been regulated. Your brokers are regulated by authorities. When you choose your broker, you should consider this factor. They offer licenses to the brokers to operate. Licensed brokers are regulated by them. It is done to safeguard the interest of the traders. You can freely trade with licensed brokers. They provide security. Here we will discuss a few of the leading regulators.
- FCA: FCA = Financial Conduct Authority. It is a UK regulator. They have two main responsibilities. To monitor trading and speculation.
- CFTC: CFTC = Commodity Futures Trading Commission. It is a US regulator. Their main responsibility is to oversee the brokers.
- SEC: SEC = Securities and Exchange Commission. It is a US regulator. It regulates Exchanges and markets.
- FSB: FSB = Financial Service Board. It is a South African authority.
- CySEC:CySEC = Cyprus Securities and Exchange Commission. It is a Cypriot regulator. Their main responsibility is to passport various trading brands. It is done across Europe.
- BaFin: BaFin = Bundesanstalt für Finanzdienstleistungsaufsicht. It is a German regulator. When translated in English, it means The Federal Financial Supervisory Authority.
- Finanstilsynet: Financial Supervisory Authority. It is a Denmark regulator.
- ESMA: ESMA = European Securities and Market Authority. It provides guidance to all the regulators in Europe. It imposes rules. These rules are to be followed all over Europe. Regulations such as,
- Leverage caps
- Blanket ban
However, these rules are not for everyone. It is only for retail traders. It is not for professional accounts.
Trying a broker and trading platform for Free
You can easily try a broker for free using demo accounts. These accounts are simulated. They create artificial markets and you have to trade using virtual money. With a free demo account you can get practical knowledge and exposure. You can test the broker’s service for free. You can also check how the brokers and trading platform works. If they have proper software, tools, etc. It is the best way to get familiar with a broker. But I need to beware.
There are certain risks associated with demo accounts. They won’t be able to re-create the emotional aspect and market pressure of the real market. The real market will have real risks and pressure unlike demo accounts.
Brokers: How do they make money?
There are two main types of brokers in day trading. We are going to dice about them and know how each one makes money.
Many online brokers fall into this category. They will be always ready to buy or sell. You just have to pay a certain price. Because of this you can easily make money by taking advantage of price shifts. However, they can easily make up this loss. They will compensate for it. You will notice that their bid price is lower. And the ask price will be higher. There won’t be a huge gap. But a slight gap is enough to get back at you.
The slight price difference is often overlooked by traders. But when multiple traders use their platform and place multiple trades, this little amount multiplies and becomes a huge amount. This is how they make money.
You will find fixed and variable spreads with them.
- Fixed Spreads: This spread is fixed. It will not change depending on the market situation. However, it will be wider. It is done to minimize the risk.
- Variable Spreads: It changes as per market situations. It can be wider or tight depending on the condition of the market. When the liquidity increases, it becomes tight.
- Example: Let’s understand how market makers make money. So if you have 10 shares of Facebook and you sell them to your broker. They will buy it, even if they don’t have any sellers. Now they will buy these shares for $500 each. And they will sell it for $500.05. So here $0.05 is their profit. This is how they make money. They are online brokers.
OTC Broker (Over the counter)
They are also known as discount brokers. They are very popular in day trading. You don’t have to pay commission to them. There are also no trading costs.
These brokers will act as the other party. In trading there are two parties, i.e. buyer and seller. So, when you have to trade, they become the other party. Because of this they eliminate commissions. You have to trade against them.
They can be compared on the basis of following points.
- Increased liquidity: The market makers increase the liquidity in the market. They are wholesale dealers.
- Costs: You don’t have to look for buyers and sellers. Market makers include less costs.
- Motivation: OTC brokers make money when you lose. Market makers are not the same.
Broker: Payment methods
Brokers normally offer different methods for deposit and withdrawal. Here are some common payment methods offered by them.
- PayPal: It is very common among brokers. It is quick and safe. Almost all brokers have PayPal.
- Skrill: It is a digital wallet. It is speed and security. It includes all major currencies.
A broker works as a team player. When you have an excellent team, you are bound to win. So choose a broker that can support you and boost your performance. Compare the factors and choose the one that fits your requirements.