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Day traders focus on buying and selling stocks the same day rather than holding positions overnight, which sets them apart from swing traders or long-term investors. Because they are entering and exiting trades so quickly, day traders have unique needs when it comes to a brokerage firm. You need to carefully consider the broker's commission rates, margin rates, execution times, and financial stability as they tend to trade large amounts of capital. (Related: How to Become a Day Trader).

In this article, we're going to take a look at how to rate day trading brokers and the top ten firms that day traders are considering for their needs.

Tips for Evaluating Day Trading Brokers

The top considerations for most day traders are commissions, margin rates, and other trading-related costs. Even if a day trader can consistently beat the market, profits from these positions must exceed commissions. And for a wholesaler, commission costs can easily run into the hundreds or thousands of dollars a day. Traders can check these prices by contacting the broker or checking their website, but most brokers offer special prices for very active day traders.

The second most important consideration for day traders is the quality of the trading platform, which can affect the speed of execution and price quotes. In an environment where more than half of the trades are high frequency trades, it can be very costly for day traders to experience a second or second delay in processing their orders. Most brokers offer real-time execution, but slippage remains an issue and traders should always test a platform to see for themselves what execution speeds are likely.

It is also important for day traders to consider factors such as customer service and the broker's financial stability. Customer service plays a key role in times of crisis - for example, in the event of a computer crash or other errors, when you need help placing a trade. Many brokers offer dedicated account managers to very active day traders to help with this matter. The firm's financial strength is also important as brokerages can and will get out of business, which in some cases can result in loss of account value.

Top 10 day trading brokerages

There is no best brokerage for every day trader as every person has different needs and trading styles. For example, some day traders use automated computer programs that act on their behalf and are only supported by some brokers. Others prefer brokers with the lowest commissions or fastest execution speeds to maximize their profits. Based on these factors, here is a list of the top 10 brokerage firms day traders consider, as well as what makes them different from the others on the list.

  1. Interactive Brokers - Interactive Brokers, often referred to as IB, specializes in day trading with direct access to stocks, options, futures and forex. The commission rates are among the lowest in the industry, and the platform is specially designed for day traders with programmable hotkeys and customizable order types. The platform also supports algorithmic trading and is still popular with institutions.
  2. TradeStation - TradeStation is best known for its powerful desktop and mobile platforms, which have integrated support for automated trading and are directly connected to their brokerage services. Their tiered commission structure also provides active traders with competitive prices, while the broker is known for its fast execution speed and strong customer support.
  3. Lightspeed Trading - Lightspeed Trading is designed for fast execution times with very competitive multi-tier commissions and several different platform options including RealTick Pro for stocks. The broker's customer care line also has wait times of less than a minute, which is attractive to those who need assistance and don't want to wait long.
  4. TD Ameritrade - TD Ameritrade entered the day trading market with the acquisition of Thinkorswim, which rivals TradeStation in terms of performance and functionality. In contrast to IB, TradeStation or Lightspeed, the broker does not offer unbundled rates, but still offers day traders competitive commissions. The platform is also among the best customer service reps with well trained representatives and short response times.
  5. Fidelity - Fidelity is traditionally not known as a day trading broker, but its leading order execution and Active Trader Pro platform have put it in place with the market leaders. The downside is that commissions tend to be more expensive than other brokers in the category and they don't offer unbundled rates.
  6. eTrade - eTrade is very popular with day traders, especially after the OptionsHouse acquisition. The company's platforms have received a significant boost following the acquisition of OptionsHouse, which acquired unique tools such as liveACTION from tradeMonster. The company also offers a 2-second execution guarantee on S&P 500 stocks and any ETF with an average speed of 0.9 seconds.
  7. OptionsXpress - OptionsXpress offers a single platform for trading stocks, options, futures and forex. However, the broker's real strength lies in options trading, which allows traders to identify options strategies based on their personal risk tolerance and offer competitive commissions in the room.
  8. SpeedTrader - SpeedTrader offers direct market access with faster executions and better fillings than many other brokers with over 25 different routing options. Commissions are very competitive and the company offers a variety of different platforms including its all-in-one trading workstation that offers hotkey support and direct access routing functionality.
  9. Generic trade - Generic Trade offers low-cost trading at just 59 cents and access to a solid trading platform while talking itself out of dodging vendors, bells, or whistles. The company also offers relatively low daily trading margins, which can make the broker attractive to new day traders.
  10. MB Trading - MB Trading from TradeKing differs from other day trading brokers through its extensive API, which enables software-oriented traders to easily operate their own automated trading applications. The proprietary MBT Desktop Pro and Mobile also offer great options for non-software-oriented retailers.

The bottom line

Day trading is one of the most challenging professions in the world, but the rewards can be substantial for the few who succeed. If you move into day trading, the chances are that your current broker is not the best. Consider these brokers who are more responsive to the needs of day traders with lower commissions and faster executions. To optimize your chances of success, choose a broker that is best suited to your trading strategy and the market of your choice.