There’s a lot of talk these days about index investing and passive money management. Many investment firms are streamlining operations to reduce their expenses and appeal to investors looking simply for low costs over the long term.
But index funds are far from perfect — as even the creators of the vehicles admit — and in this era of rock-bottom interest rates and disappointing global growth, there’s an undeniable appeal to tactical investing or day trading stocks.
I’ve personally been trading stocks, options, and ETFs for a decade. Thanks to an explosion in high-tech tools, and competition for ever-lower costs, it’s never been easier to actively play the market. Provided you choose the right trading platform, of course.
The Simple Dollar’s Top Picks for the Best Day Trading Platform
- Most Customizable Day Trading Platform: Lightspeed
- Best Day Trading Tools: TradeStation
- Best Low-Cost Day Trading Platform: Interactive Brokers
Not all trading platforms are created equal.
Buy-and-hold retirees and rookie investors have much different needs than seasoned day traders looking for agility and sophistication.
For many day traders, sitting in front of their trading platform is their full-time job. (Yes, it’s lots of fun for us traders who love the high stakes and adrenaline rush, but that doesn’t mean this is a hobby.) The best trading platform for day traders needs to be a useful tool, and not just a cheap or flashy connection to the markets.
When looking for a good platform, I cut through the touchy-feely stuff like educational tools or asset allocation calculators. For day traders, it’s not about tax efficiency or diversification, it’s about making money right now.
And while I think fees matter, cost isn’t the only factor. If you were a carpenter, for instance, you’d buy the best tool for the job, not simply the cheapest. Same goes for day traders.
My must-haves for the best day trading platform include:
- Speed. This is a huge priority, both in research and order execution.
- Reasonable fees that last. There are a lot of promo offers out there that last just a month or two — Scottrade, E*Trade and TD Ameritrade all offer free trades for the first 60-days, and then push that up to a standard rate that’s as much as $10 per stock transaction. The initial savings of promos like these more than offset on the back end.
- Access. The tool should go beyond US stocks to include options and futures.
- Flexibility. A good platform should work alongside the other tools and services you’re using.
I found three excellent platforms that did all these things in spades.
And above those must-have factors, each has its own unique value for traders, depending on their tendencies. But, interestingly enough, I don’t currently use these platforms to manage my own money and don’t plan on switching. I use Merrill Edge because — quite frankly — I have a large enough account and do enough other business with Merrill and its parent Bank of America that I get a sweetheart deal. I also really geek out on Merrill Lynch’s in-house research over its peers, so it’s in-line with my personal investing methodology. Keep this in mind, because nothing in investing is one size fits all and your specific situation may open other doors for you.
Most of the big-name brokers couldn’t cut it, honestly.
That’s because there are a heck of a lot more 401(k) and IRA investors out there than day traders, and that’s who the big guys cater to. Consider Fidelity, which offers a host of its own mutual funds as ETFs to investors with zero transactions costs — a great way to save if you’re just building a diversified buy-and-hold portfolio. Unfortunately, if you want to be active and have flexibility outside the Fidelity universe, it’ll cost you.
My testing process started with simply cutting out the most expensive platforms for day traders.
I ran the numbers for a dozen brokerage platforms, from legacy names like Charles Schwab to low-cost upstarts like Robinhood to traditional discount online brokers like Scottrade. I ignored the super-premium VIP perks, but did presume a minimum account balance of at least $10,000. I also presumed activity of 100–200 trades a month — that’s five to ten each trading day. I didn’t want to overestimate and presume you’d get volume discounts, but honestly if you’re not trading actively every single day then you shouldn’t be using the term “day trader” to describe yourself.
Then I dug into the value each platform provided beyond the simple ability to trade. After cutting the most expensive half of the group based on the trading cost alone, I downloaded platform trials, read fine print about tools and data, and even trolled trading websites to find out what traders are saying about these platforms.
For the record, I didn’t actually open an account and trade on any of these platforms. But I think that the combination of quantitative measures like trading costs and qualitative measures like other reviews provide a pretty accurate picture of what’s what. And, of course, whenever there was a sticky point I would simply ask myself, “If I was trading on this platform, would I actually find this feature useful? Or would it just confuse me, or add extra costs without adding any extra benefit?”
Analysis of the Best Day Trading Platforms
Best Customizable Day Trading Platform
Lightspeed offers one of the most sophisticated and personalized platforms out there. You can literally make precise and tactical trades with the push of a button.
The Lightspeed Trader platform is all about speed and customization, displaying collapsible and movable windows instead of a fixed experience. It’s not for rookies — and that’s the point.
Want to put your charts on one screen and your orders and account info on another? Or have some important research in another program you don’t want to cover up? Just drag the modules around until you’re happy.
Want to make a keyboard shortcut to execute a trade in the blink of an eye? That’s also possible.
Heck, even the fees are personal at Lightspeed; the cost structure changes based on your activity level.
I was honestly blown away by this feature. On Lightspeed’s higher-end software (including Lightspeed Trader, which I experimented with in a trial and liked a lot) you can automate specific trading strategies that normally involve manual entry by mapping your keyboard. You can even map multiple orders for the same stock — so one key buys 1,000 new shares of Tesla while another sells 100 shares you already own. This is a must-have for serious day traders.
Rates at Lightspeed are determined by trading volume and incurred monthly. If you’re very active with your account, the savings add up in a hurry. The base rate is $0.0045 per share; if you trade 10 times a day in lots of about 150 shares each transaction, that’s just $135 per month compared with the fees of about $1,400 you’d rack up at a typical broker that charges a flat rate of $7 per trade. But, it gets better. Let’s say, instead, you trade 100 times a day. Based on that monthly volume, Lightspeed’s base rate falls to $0.0035 a share, meaning a total tab of $1,050 compared to $1,350 at the higher Lightspeed rate or a whopping $14,000 with a traditional per-trade model.
You can experience a trial version of Lightspeed’s various trading platforms simply by providing an email address and following the instructions you receive. Many premium tools don’t allow that kind of no-obligation access. Scottrade only provides screenshots of how its tools work. Charles Schwab does a bit better with videos of the tools at work in its e-mail-required “Guest Pass,” but to actually get your hands dirty with Charles Schwab, they want a Social Security number and other personal finance info. Not with Lightspeed.
Lightspeed’s customization is awesome, but it comes at a price and with a structure you may not be used to. Most noteworthy is the maintenance fee for access to its higher-level trading platforms I recommend for the outstanding features like after-hours trading and order customization. If you’re an active trader then the software pays for itself, but it’s worth pointing out the platforms run $1,200–$3,300 annually. Because of this, you need to know your tendencies and try out a demo before committing.
- Stocks and ETFs – $0.0045 per share, with a $4.50 minimum*
- Options – $0.60 per contract (for fewer than 500/month)
- Futures – $0.60 per contract
- $100 monthly maintenance fee for the Lightspeed Trader software (reviewed here; with hot-key order entries and features discussed)
* – Fewer than 250,000 stock/ETF shares; higher volume results in cheaper rates.
Best Platform for Day Trading Tools
Think four monitors is a minimum for any serious trader? Want to spend hours backtesting ideas? Need a dynamic mobile app to trade and get alerts on the go? Then TradeStation has the tools you want.
If you like charts and screening stocks, you’ll love TradeStation — and not just because its platform comes out of the box with best-in-class charting and backtesting, but because it has its own app store full of tools and plugins made by third-party developers and investors. The current offerings include everything from free earnings calendars to a premium tool for dissecting order flow ($29/ month).
The baseline tools and free plugins are impressive, but you’re sure to find an app for just about anything on TradeStation. Integrating that research directly into your portfolio and trading platform can save time and reduce complexity.
Better Bulk Orders
One particularly valuable feature comes standard in the latest TradeStation platform: TSAlgos app. It allows for automatic execution of large orders via algorithm, to break them up into smaller and more efficient chunks. No more moving the market inadvertently on low-volume stocks, and no need to parcel things out yourself.
TradeStation almost expects you to have multiple monitors with additional workstations open. With such great depth of tools and so many of them with visual elements like charts and stock screens, this feature is quite useful.
Most serious day traders have too much going on for a small screen, but TradeStation has created an agile app for both Apple and Android devices that integrates well with the desktop experience that can grant some peace of mind if you’re worried about monitoring your account on the go.
As with Lightspeed, TradeStation has variable trading fees, but unlike Lightspeed’s monthly batching, TradeStation brackets fees per order. It’s confusing and overly complicated. Let’s say you buy 1,500 shares of a given stock. The per-share rate on Tradestation is $0.01 for the first 500 shares then $0.006 for orders above that. Your transaction costs you $11 and the math looks like this:
(500 shares x $0.01 = $5) + (1000 shares x $0.006 = $6) = $11
Even though $11 is a fine price, the pricing structure is still more complicated than Lightspeed’s trade-more-save-more monthly plan.
- Stocks and ETFs – $4.99 per trade or as low as $0.006 per share (200+ trades / month)
- Options – $4.99 per trade + $0.20 per contract, or a $1.00 flat rate (200+ trades / month)
- Futures – $1.20 per contract (300 or fewer futures contracts)
Best Low Cost Day Trading Platform
Confused by the idea of volume discounts and platform fees? Keep it simple and keep it cheap with Interactive Brokers.
Interactive Brokers is one of the largest electronic brokerages in the US, executing almost 600,000 trades a day. That scale allows for competitive pricing other platforms simply can’t match.
And best of all, Interactive Brokers even beat competitors’ promotional rates. If you’re after low fees, there’s really no reason to shop around. Interactive Brokers takes the guesswork out of costs so you can do what you do best, and just make money in the markets. (It’s a cliché but it’s true — traders do hate uncertainty.)
Ever wanted to invest in a sector fund but disliked a handful of the components? IB has you covered with a great tool that replicates holdings of your favorite mutual fund or ETF so you can customize it yourself. This is a great time-saver and idea generator.
Many top-notch data sources have relationships with Interactive Brokers. If you already pay for a subscription to Bloomberg or S&P Capital IQ, you can easily sync-up your account for a seamless portfolio experience. And if you prefer free services, many major names from Morningstar news and StockTwits social signals can be integrated at no cost.
One-Click “Mosaic” Display
The Trader Workstation software you’ll get to manage your IB account is designed for agility, where one click on a ticker in your portfolio will update all your fields in a “mosaic” view, including refreshing charts and newsfeeds as well as auto-filling some order entry. While the workstation doesn’t integrate as well with third-party research as Tradestation and isn’t as customizable as Lightspeed, it’s still a robust platform that’s easy to use, agile, and responsive.
Not Just for Day Traders
Interactive Brokers regularly ranks at the top of lists like this one for the best brokerage platforms for day traders. But thanks to its ultra-low cost structure, it also wins high marks among platforms for professional money managers with fiduciary responsibilities, as well as for sleepy buy-and-hold investors.
As a result, the Interactive Broker platform is full of tools and features you may not use. For instance, its Risk Navigator tool can display portfolio metrics to measure your risk across industries or positions — a potentially powerful feature for armchair investors looking to avoid costly mistakes. However, for day traders where higher risk trades are par for the course and being overweight in a single position or sector is desirable, it’s not much of a value-add and clutters up the experience.
The size and popularity of Interactive Brokers is what gives you the low commissions, and that’s a good thing. But IB caters to all kinds of investors, not just day traders, so you’ll have to get used to separating what’s useful for you from what’s useful for others.
- Stocks and ETFs* – $0.005 per share with $1 minimum and a maximum of 0.5% of trade value
- Options – $0.70 per contract, with a minimum order of $1.00 **
- Futures – $0.85 per contract
* – Certain commission-free ETFs can be bought at zero cost to you
** – Based on a premium of greater than 0.1 and 10,000 contracts or less each month.
Any of these platforms are great tools for day traders looking to swing trade stocks or even make short-term bets with options or futures.
But one thing I admittedly steered away from evaluating were how these platforms work for the most aggressive strategies such as forex, short selling, or trading on margin. I don’t consider myself a timid trader, but I have never been comfortable with trading on margin with borrowed funds. It’s not only risky, but can be very costly with the added fees. And with the ability to buy currency ETFs or buy put options, it’s not like traders don’t have alternatives.
If you love leverage and it’s the feature of your trading service, these platforms could end up costing you. But, any platform could end up costing you a ton if your trade sours and you get the dreaded margin call.
Let’s say you pony up $10,000 to buy 100 shares of a stock at $100 and watch it drop to $50. Sadly, you’ve lost $5,000. But it’d be a worse if you were so convinced it was a great investment that you put in $10,000 of your own cash and another $10,000 borrowed from your broker. Now you’re facing a $10,000 shortfall — the entirety of the “real” money you invested — plus an 8% interest rate on your loan, or another $800 bucks in fees, which you may not even have.
And if you don’t have it? Well, your broker may just sell some of your other assets to cover the shortfall whether you like it or not. And that could result in even more collateral damage since the sale isn’t based on your investment strategy at all, but on your negative account balance.
Even if you’re right, you’ll still get charged that $800 fee, so you better be sure you’re making at least $801 in profit or the only one getting richer here is your broker.
There are a lot of other arcane fees and rules relating to microcap or OTC trading, too, with many brokers charging an extra fee for stocks trading for less than $1 a share or charging fees upwards of $100 for any transaction that is hard to execute because it gobbles up too much volume in a thinly-traded stock that doesn’t see much action.
This is not to say you can’t make money with these strategies. But as a public service announcement, I’ll also say that I know plenty of people burned by all these approaches both through bad trades as well as “good” trades that work on paper but rack up steep fees that eat into potential profits. If you rely heavily on one of these approaches, I recommend you closely read the fine print at these and other brokers to protect yourself.
All three platforms met my criteria for speed, reasonable fees, access, and flexibility. Lightspeed is the most customizable, TradeStation has an impressive array of plugins, and Interactive Brokers has unbeatably low costs.