Day Trading Broker

Day traders utilize a day trading broker and attempt to profit from making many small trades within the same day in order to avoid the possibility of losses which may occur by retaining their positions overnight. Their mindset is one of making a profit by taking advantage of small price movements which occur in the market. Many hold stocks for only minutes or even seconds. Some advertisements for day trading firms take advantage of the erroneous perceptions of people who see day trading as a means of huge profits and easy money. On the contrary, the only guarantees that most seasoned observers offer are the frequent losses and the unpredictable nature of trades.

Although day traders are relatively few in number, their influence is thought to be about a quarter of NASDAQ's daily volume of trades. Day trading firms offer training and access to markets using high speed connections. They also provide entry to NASDAQ Level II and Electronic Communication Networks (ECNs), which are generally out of the reach of regular on line investors. Like all brokers, these firms are registered with the Securities and Exchange Committee (SEC) and must comply with federal securities laws and the rules set by self-regulatory organizations (SROs) in the industry. The SEC seeks to uncover securities violations, and corrects careless practices which are at times found to exist in the areas of general supervision, margin accounts and loans, and the disclosure of balanced information about risks and profits. The SEC defines 'pattern day traders' as traders who buy and sell a particular stock or security in the same trading day and do this more than four times in any five consecutive business days. These traders must maintain an equity balance of at least $25,000 in a margin account. Although day trading firms are required to inquire whether clients have experience in trading or understand the potential risks of this practice, some are somewhat self-serving by emphasizing potential profits. Whether the customer wins or loses, the commissions and fees of the day trading firms are still going to be realized.

True, a day trading broker offers a valuable service. Real-time data is essential to traders, who must take advantage of tiny fluctuations in markets in order to realize a profit. (Free market data may be delayed by several minutes or up to an hour.) Also, direct access brokers allow traders to send orders to ECNs, allowing a trader the benefit of speed, and transaction fees which are much cheaper than those charged by retail brokers. These savings in time and fees allow the trader to cover expenses more readily and respond quickly to opportunities.

The Bible says that "Wealth gotten by vanity shall be diminished: but he that gathereth by labour shall increase." (Proverbs 13:11) Far from the road to easy riches, the job of the trader is very stressful and can be quite expensive. Although access to real time data is usually part of the day trading broker fees, further specialized data (histories, charts, scanning) can add to expenses incurred by training and commissions. It is important for one considering this pursuit to calculate carefully how much profit will be needed to break even. Markets must be watched constantly and decisions made almost instantaneously. Therefore it is necessary to make plans ahead of time as to the limits of buying and selling points which will help guard against disastrous losses. However, careful planning and cautious purchases alone will not guarantee profits. Even professionals with a history of success can fail spectacularly. Even though people are generally creatures of habit, and some investors try to capitalize on seemingly predictable trends, movements in the stock market are individual events, so no expertise gained at a seminar or in a book or computer model can guarantee successful outcomes. If they could, one can bet that those authors, instructors and computer technicians would be using them to gain money rather than spend time selling their products. Think about that.

In summary, the job of the trader is complex and requires one to be both disciplined and flexible. Money which will be spent in trading must be funds which the trader can comfortably live without. There is a single item which observers of the practice of trading are in agreement about: Losses are expected regularly. Many day traders do not last to the point where they make a profit at all. Some end up owing the day trading broker more than they invested. That is definitely something to think about. Care must be taken before signing on with a broker as well. Avoid those who promise easy profits or balk at sharing the history of their own firm's profits or losses. Be sure to check out the registration of each firm with the state securities registrar. One can also see if there is any type of disciplinary history or problems recorded. Make sure to understand the fine print in the contract and that questions are answered fully. Know how to deal with future problems which may arise. Hopefully, these can be settled with the firm's broker or branch manager. Otherwise the problem may be sent on to the state's securities administrator or finally, the Office of Investor Education and Advocacy at the SEC. At each step in the process of trading, it is worth repeating that the responsibility rests on the trader to be involved with planning and insight, as well as to accept responsibility for his or her decisions.