Day trading should be an exciting arena for those to whom money and freedom matter. This can prove to be extremely profitable with its unique undertaking style. Nonetheless, trading in forex or futures does involve substantial risk. However, if you are observant enough, you’ll be able to see through the challenges of trading security in margin accounts. With the right assets and strategies, you can achieve success in this venture. For starters, the right broker is considered one of the best assets in day trading. This article is specifically prepared to guide you on how to choose the best broker considering your needs. Here’s what you need to know before selecting a broker,
- Choosing the type of broker: Depending on the type of broker you choose your overall trading performance can vary immensely. Brokers can be categorized into two types, Dealing Desk and ECN brokers.
A dealing desk broker makes money through the price difference between the bid and the ask, providing liquidity to the clients. If you appreciate fixed spreads a dealing desk broker might be ideal for you.
ECN stands for Electronic Communication Network. Via this technology, this sort of brokers grants you direct access to other market participants. Compared to other options ECN brokers are better for day trading for multiple reasons. Because ECN brokers deal with price quotations from various trading parties they can offer way better spreads. While working with dealing desk brokers has chances of conflict of interest, the operational mode of ECN brokers eliminates such chances. But being one of the market makers, they cannot trade against their clients. At the same time, consider yourself warned, some brokers claim themselves to be ECN brokers despite having the features of dealing desk business model.
- Regulation: Having regulatory compliance that governs the activities of any trustworthy broker. An official regulator is tasked to promote and protect the integrity of brokerage operations.
An unregulated day trading broker may use your funds as it pleases, making them turn out to be incompetent and scammers most of the time. On the other hand, with regulated brokers, all sorts of black hat activities are out of question.
All the broker in the US has to be a member of the National Future Association (NFA) and have themselves registered with US Commodity Future Trading Commission (CFTC). While selecting a broker, check their website and the About Us section to be certain of the license and credentials. Don’t forget to take a look at their reputation and operational history and feedback.
- Trading Platform: A trading platform is your portal to market, thus making it an integral part of brokerage. For your comfort, you should make sure that the trading platform and trading software is easy to use and responsive. A good platform has essential features with both fundamental and technical analysis tools. Accessing it from different devices should not be complex. Entering and exiting trades must also be effortless since even a fraction of a minute matter in trades.
In contrast, poorly designed platforms cause mistakes that have a high compensation rate. You might open a position instead of closing it or you might accidentally go long when you meant to go short etc. the inconveniences are never-ending. It is wise to request a trial account to practice the feature set of your trading platform.
- Structure of commission and fees: While enlisting the services of day trading service, the commission is an unavoidable part. But don’t get too caught up by it, just because a broker is offering the cheapest commission avoid blindly jumping on to them. Because cheap commissions won’t matter if they don’t help you make money.
Different brokers offer different commission structures, pay attention to them and select a style of your suiting. Day trading broker fees are determined by data, platform, Withdrawal, inactivity fees, and other essential costs.
Among the two types of commission structure, per-trade and per-share, per-trade is more expensive than the latter.
When you pay a small fee for every trade that is considered as a per-trade commission. So, scaling your positions, the per-share commission should be a better choice.
- Fund Security: Since this trading is risky, a raft of rules has to be complied by the brokers to safeguard your assets. All the brokers are subject to Net Capital Rule which ensures your protection of safety net if a broker has to close shop.
So you should research the fund safety regulations before finalizing a broker for your day trading.
- Customer Care: Last but not least, the importance of good customer care is unmatched since trading takes place 24 hours a day, you should be able to reach them whenever they are needed.
Instead of auto-attendants being able to reach an actual person as support is more preferable. Customer service should be able to provide you Information about spreads, fees, regulations, leverage, etc.
Choosing the right broker according to your trading style is one of the most important decisions in this venture. Note this, choosing the best broker is more of a process than a goal, so you’ll have to continuously monitor the broker diligently to gain success in this field.