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How do I Choose the Best Day Trading Account?

Ron Davis
Ron Davis

There are several factors that go into choosing a day trading account. Day traders either work from charts or from a computer program that interacts with price data, and both methods require prompt and reliable data flow. They also need to have their orders received by the broker and placed into the market quickly. By definition, day traders make more trades than position traders, so transaction costs are a factor. Leverage or gearing can be a factor as well.

The best day trading account for a stock trader will differ from that of a futures trader or a forex trader both in the amount of leverage available and the minimum account size. A stock market day trader is one who executes four or more trades over five business days in a margin account, and those trades constitute more than 6% of his trading activity for the five days. The required minimum account size is $25,000 US dollars (USD). A day trading account can trade up to four times the value in equities as the trader has in his account.

Businessman with a briefcase
Businessman with a briefcase

A futures day trading account may be opened for $5,000 USD. Futures day traders should check the day trading margins policy of a brokerage before committing to trade with that brokerage because not all brokers permit the usual day trading margins of 50% of overnight margins. Leverage is set by the exchanges individually, and varies from commodity to commodity, according to the volatility and risks in the market at any given time. The exchanges change the margin deposit whenever their risk models indicate the risk has changed, and exchanges decrease margin requirements as readily as they increase them.

Most brokerages now use the Internet to allow clients to place orders and receive data. Many brokers link clients through their computers to the order computers. That allows the client very good speed while permitting the brokerage computer to protect the broker from clients who trade in larger size than their margin deposits allow. Most brokerages have interfaces to allow clients to run charting and/or trading programs directly from the client's computers. The trader needs to make sure his internet connection has adequate speed and reliability to cope with his day trading account.

In addition to speed and leverage, low transaction costs also factor into choosing a day trading account. In a stock market day trading account, transaction costs will be determined by the commissions charged. Some futures markets data and some stock market data is sold to brokers by the exchange. IN some cases, some futures broker may charge clients for data that is free at other brokerages. A trader preparing to open a futures day trading account should inquire about both data charges and commissions.

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