The average active trader underperforms the S&P 500 by 6.5% per year, but day trading is among the most competitive forms of trading. In fact, just one percent of day traders can predictably generate a net profit after fees!
Successful day traders rely on a combination of superior market access and cutting-edge technology to find and capitalize on short-term opportunities in the market.
Let’s take a look at some of the best day trading platforms that provide these capabilities.
What is Day Trading?
Day trading is the buying and selling of a stock, contract, currency pair, or other security within a single day. In other words, the trader must buy the security after the opening bell and sell it before the closing bell. Securities held overnight are not considered day trades — at least by regulators — even if the trade is entered and exited within 24 hours.
Most day traders use technical analysis to make trading decisions. For example, they may look at pivot points or support and resistance levels for a given day and trade based on how the price reacts to those levels. The day trading strategies that they use are often a lot simpler than swing or position traders, but they involve a closer analysis of Level 2 supply and demand.
Let’s take a look at some common examples of day trading:
Suppose that Apple’s earnings announcement took place during pre-market hours. A day trader look at prior price action and identify likely support and resistance levels for the day. After the market opens, the trader may wait for the stock to reach the resistance level amid optimism, confirm a potential reversal by looking at the order book, and then fade the stock once it reaches that level to generate a profit.
In other cases, traders use technical analysis to support their trades. Suppose a day trader wants to capitalize on very short-term movements in a highly liquid index, such as the S&P 500 index.
In the chart below, the trader entered a trade when the price hit the 50-day moving average and exited the trade when the RSI reached oversold levels. The short-term trade resulted in a profit of about $1.00 over the course of just an hour.
Since they’re capitalizing on small price movements, most day traders use margin accounts. These accounts enable them to borrow capital from a brokerage to enhance their return on investment. Day traders can borrow up to 50% of the total cost of purchase margin, which can significantly amplify their gains and losses. The idea is that they can profit from small gains.
Day traders have several unique requirements compared to traditional traders and investors.
From a regulatory standpoint, any margin trader that day trades four or more times in five business days may be subject to FINRA’s ‘pattern day trading’ rules if the day trades are more than six percent of the trader’s total trading activity for the same five-day period. Pattern day traders must maintain minimum equity of $25,000 on day trading days.
Day traders also require day trading platforms to help them make decisions in the moment. While basic stock charts great for investor or even some swing or position traders, day traders require access to real-time prices and decision support tools to ensure that they don’t miss a beat. A few seconds delay can mean the difference between a profit and a loss.
Automated trading systems are also a lot more common among day traders. By removing emotion from the equation, automated trading systems enable day traders to focus their efforts on tried-and-tested strategies and ensure that they consistently execute on their strategy of choice. Automated day trading platforms may also support high-frequency trades.
Most Popular Platforms
Day traders have access to many different platforms designed to provide best-in-class execution and decision support.
TrendSpider is a powerful technical analysis platform that focuses on automation. Rather than trying to watch a hundred charts at once, you can set up real-time SMS or email alerts that are triggered based on technical analysis events. You can even backtest technical analysis events to see how they would have performed in the past to assess their potential.
NinjaTrader is a futures brokerage with an award-winning trading platform. In addition to its charting capabilities, the platform enables futures traders to build rich and integrated trading apps, backtest their trading strategies, and automate their trading through the company’s brokerage. You can access thousands of third-party apps and add-ons through the company’s diverse ecosystem of vendors.
Lightspeed Trading is a popular day trading platform that includes access to stocks and options with over 100 order routing destinations. In addition to its integrated charts, the platform provides multi-threading, advanced scanners, and complex options trading with research capabilities provided by TipRanks. It’s a great platform for traders looking for superior trade execution and low costs.
SpeedTrader is a popular trading solution that’s designed for speed. With over 100 hotkey options, over 25 routing options, and sophisticated stock scanners traders can quickly identify and place trades to capitalize on short-term opportunities. You can even manage multiple accounts under the same platform to easily toggle between clients or asset classes.
MetaStock is one of the oldest and most established trading platforms for day traders. Over the past 30 years, the platform has become a go-to for traders looking to develop automated trading systems. The XENITH real-time news, data, and analysis package also provides up-to-the-second market information that day traders rely on to make decisions.
The Bottom Line
There’s no doubt that day trading is exceptionally difficult, especially compared to other forms of trading and investing.
Selecting the right day trading platform can help tilt the odds in your favor with better trade pricing and execution and tools that provide real-time alerts when opportunities present themselves. Many day traders use multiple tools, such as a chart package and a brokerage platform, to provide everything they need to identify opportunities.