How to choose a trader trading account. Features of trading accounts.

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What is a trading account?

As you probably know, demat account is essential for holding your securities in today’s digital age. But note the careful use of words! A demat account, while it may allow you to hold your securities, will not allow you to ‘transact’ – that is, buy or sell securities. For that, you’re going to have to open a trading account.

  1. A trading account is mainly known to facilitate multiple objectives that are essential for all types of trading – right from helping you manage expenses to keeping a careful control of your choice of transactions.
  2. A trading account is typically used by traders to speculate about the movements of the assets, with an expectation of a decent profit.
  3. There are two types of trading accounts: a securities/standard trading account and a commodities trading account.

Objectives of a trading account

A trading account is mainly known to facilitate multiple objectives that are essential for all types of trading – right from helping you manage expenses to keeping a careful control of your choice of transactions. As the name suggests, a trading account helps customers trade in securities.

  • A trading account helps the broker or the investment dealer to keep track of progress by comparing the present figures with those of the previous trading year.
  • The gross profit percentage on net sales (gross profit sales) can be easily determined by the trader. The trader or the broker can keep a track of the gross profit and determine the profit percentage that you’ve gained on transactions. The gross profit should be adequate enough for indirect expenses.
  • You can conduct proper planning and research to improve the results of your investments made through the trading account, thanks to the vast array of data available to you.
  • Your broker can keep a track of the stocks at the open and end of a particular trading day.
  • The stock turnover ratio can be determined from your trading account. This rate can be used to measure the failure or success of the business.

Basics of Trading Accounts

A trading account is essentially used to facilitate transactions such as stock trading, mutual fund investments (or redemptions), ETFs and more. Additionally, it can also keep a track of cash, securities, foreign currency and other transactions.

Investors use a trading account for transactions involving stocks, commodities and other securities. A trading account is typically used by traders to speculate about the movements of the assets, with an expectation of a decent profit.

An investor can also open multiple trading accounts with different brokers for several purposes. Here are some of the most popular reasons why traders tend to use their trading accounts:

  • Day-trading activities
  • Long term investment
  • Retirement savings
  • Education and health insurance planning

In a trading account, only direct expenses and revenue are considered. Direct expenses are considered on its debit side, while direct revenue is considered on its credit end. No item related to the past year is considered. If the credit side has a bigger total than the debit side, it indicates a profit, and vice-versa.

How to open a trading account

For investing in securities, you necessarily need a demat account and a trading account. In fact, if you’re trading futures & options, you could possibly go without needing a demat account, but not without a trading account.
Here are the steps for opening a trading account online:

  • First, you need to select a broker. The broker must respond to your demands in a timely order. Time is money–especially when dealing with the stock market. A smooth and intuitive user interface is key to saving time.. Ensuring that you choose a good broker from the beginning of your trading life is a very important decision. Speaking of which, have you checked out Upstox Pro?
  • Next, you should compare the brokerage rates. Each and every broker or firm charges a processing fee. And then there are some of the good ones that don’t.
  • Get in touch with the brokerage firm and read whatever you find about their account opening procedure.
  • The firm would either send a representative to your house or office with the demat account opening form and Know Your Client (KYC) form or allow you to open the trading account online. You have to fill up or submit those forms and give them the required documents [proof of identity, proof of address, proof of bank account (cancelled cheque or bank statement)] to carry on the process.
  • Your forms will be verified on the phone or through an in-person check and you will have to disclose your personal details.
  • Once all the procedures are completed you will be provided with the details of your trading account.
  • Now, you should be all set to conduct trades in the stock market.

Types of trading accounts

A Standard trading account covers all the basics. It allows you to trade equity intraday and delivery, futures & options, mutual funds, exchange-traded funds (ETFs) and currency futures. This is ideal for short-term traders leveraging their funds at a high frequency.

A Commodity Trading Account is one you’ll need to open if you’re planning to trade in commodities such as gold, silver, crude oil, and copper. A commodities broker is who you need for this process. A commodities broker is an individual broker or a firm that is a trading member of a recognized commodity exchange like the MCX. With a commodity trading account, you can trade commodity futures, and therefore would not need this to be linked to your demat account.

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You can open only one trading account with one broker. That just means that you can’t have multiple trading accounts with just one broker. However, you can hold multiple trading accounts provided your brokers are different.

Clearly, a trading account is a necessity for an investor, on par with a demat account. The online trading account opening process has gotten far simpler than before, making it even more lucrative to jump in and become a part of India’s success story as its markets scale new heights.

Day Trading Brokers and Platforms in Russia 2020

Compare the best day trading brokers in Russia and their online trading platforms to make sure you pick the most appropriate to your needs. Use the comparison of spreads, range of markets and platform features to decide what will help you maximise your returns. No single broker can be said to be best at all times for everyone – where you should open a trading account is an individual choice.

Here we list and compare the top brokers for day traders in 2020 with full reviews of their interactive trading platforms. So whether you are a forex trader or want to speculate on cryptocurrency, stocks or indices, use our broker comparison list to find the best trading platform for day traders.

Brokers in Russia

How to Compare Brokers

Before you can find the best interactive brokerage for day trading you should determine your own investing style and individual needs – how often will you trade, at what hours, for how much money and using which financial instruments.

Then when choosing between all the top rated day trading brokers, there are several factors you can take into account. If you simply pick the cheapest, you might have to compromise on platform features.

There is no one size fits all when it comes to brokers and their trading platforms. The best brokerage will tick all of your individual requirements and details.

These are some of key points and areas to compare in this competitive market:

Costs

  • Do they offer low commission rates? – As a day trader placing numerous trades intraday, low commissions over a long period will bolster your overall profit.
  • Do they offer attractive margin rates? – If you can anticipate a return higher than the interest your paying on the loan, then generous margin rates will allow you to trade big with capital you don’t have to hand.
  • Do they have a complicated fee structure? – Broker fees can rack up quickly. You need to look at the fine print to ensure you won’t get stung by hidden costs later down the line, such as when you want to withdraw your money. Having said that, the cheapest brokers for day trading usually make up that money in other areas, such as customer service.
  • Will you need a minimum deposit?- Some brokers will require you to put down significant capital in order to open an account and start trading. For example, if you’re day trading at Interactive Brokers you’ll need to put down serious cash before you can get to work.
  • Does the broker have a daily trading limit? – Some limits are imposed to protect against extreme volatility and market manipulation. But the Interactive Brokers day trading limit can be set by you to prevent you losing too much capital in one day.
  • Do they offer different account types? – Different accounts will come with varying costs and attractive perks. For example, choose between Interactive Brokers day trading accounts and you can get lower commission fees, greater leverage and enhanced tools for technical analysis. Read more about Account types here.

Trading Platform Features

  • Do they have high tech, informative tools for research and analysis? – You will need live price quotations, plus detailed charts and access to historical data will also help you trade smarter. The top 10 online brokers all offer a multitude of tools and resources.
  • How quick and efficient is their order execution? This is massively important if you’re day trading, as just a few seconds could cost you serious cash. Whilst many virtual brokers offer real-time execution, there remains a slippage concern. This highlights the need to test drive your broker first.
  • How user-friendly is their platform? – The trading platform provided by the broker needs to work for you. Most brokers offer several to choose from, some will tick the boxes for the average day trader, others will offer more advanced platforms for the veteran trader. Likewise, does it suit your hardware – is the platform compatible on Mac, PC, Linux, or whatever you use?
  • Is there a Mobile platform? – It is rare for a broker not to deliver a mobile trading app, but the quality will vary. If trading on your mobile phone is important, then checking the apps compatibility (Android, iOS or Windows etc) will be vital.

Customer Service

  • How good is their customer service? – Will you be able to quickly get in contact with someone when you need support or advice? This is particularly important if something goes wrong like a computer crash. Some brokerages offer 24/7 customer support, with call waiting times of less than one minute.
  • Do they have a ‘dealing desk’? – The best brokers offer direct access. You don’t want to be sending an order to a train desk which then initiates it in the market. This is time-consuming and can result in re-quotes. By the time you’ve confirmed you want to proceed, your opportunity has probably vanished.

Extras

  • Do they offer any attractive extras?– Any ‘Open Account’ promotions? £100 in free trades might not be everything, but it means you can iron out any creases in your strategy before it’s your money on the line. Trading without a broker means zero free credit for trial and error.
  • Are there Account levels? Does a VIP account get free Level II data or reduced spreads?
  • What returns do you get on your cash? – You’ll find you usually have something lying around in your brokerage account. Some brokerages won’t offer you a penny on that balance, but some will give you 3-5%.
  • Trading Strategy – Can you implement your trading strategy, or even use automated trading, signals or copy trading at this broker?

Final Word On Comparing Brokers

Do your homework and make sure your day trading broker can cater to your specific requirements. It’s always worth giving your potential day trading broker a test. Set up a demo account, make sure you like the platform, and send off some questions to gauge how good their customer service is. Get this choice right and your bottom line will thank you for it.

Need a short cut? Check out the winners of the DayTrading.com Awards this year.

Broker Reviews

Use this table with reviews of trading brokers to compare all the brokers we have ever reviewed. Please note that some of these brokers might not accept trading accounts being opened from your country. If we can determine that a broker would not accept an account from your location, it is marked in grey in the table.

Broker Reviews
Broker Demo Min Dep. MT4 Bonus
24Option Yes $250 Yes No
Alpari Yes From $/£/€ 5 Yes Yes
ATFX Yes 100 $/€/£ Yes No
Avatrade Yes $100 Yes No
AxiTrader Yes 0 $/€/£ Yes No
Ayondo Yes £1 Yes No
BDSwiss Yes 100 $/€/£ No No
Binary.com Yes $5 Yes No
BinaryCent Yes $250 No Yes
Binomo Yes €/£/$10 No No
BitMex Yes 0.0001 XBT No No
Capital.com Yes £/$/€100 No No
CityIndex Yes £/$100 Yes Yes
CMC Markets Yes £ 0 Yes No
Degiro No 0 $/€/£ No No
Deriv.com Yes €/£/$5 Yes No
E-Trade Yes $500 Yes Yes
Easy Markets Yes €100 Yes No
eToro Yes $200 ($50 in US) Yes No
ETX Capital Yes £250 Yes No
Expert Option Yes 10 $/€/£ Yes Yes
Finq.com Yes $100 Yes Yes
Forex.com Yes $50 Yes No
Fusion Markets Yes No Minimum Yes No
FXCM Yes £300 Yes No
FXPro Yes $100 Yes No
FXTM Yes From $10 Yes Yes
HighLow Yes $50 Yes No
IC Markets Yes $200 Yes No
IG Group Yes £250 Yes No
InstaForex Yes $1 to $10 (Account choice dependent) Yes No
Interactive Brokers Yes $10000 No No
Invest.com Yes £0 Yes Yes
Investous Yes $250 Yes No
IQ Option Yes $10 No No
Just2Trade Yes £2500 Yes No
LCG Yes 0 $/€/£ Yes No
Libertex Yes £/€10 Yes No
Markets.com Yes $100 Yes No
Nadex Yes $250 No No
NinjaTrader Yes $50 Yes No
NordFX Yes $10 Yes No
Oanda Yes $0 Yes No
Pepperstone Yes £200 / $200 Yes No
Plus500 Yes $100 No Yes
Robinhood No No Min No No
Saxo Bank Yes $10000 Yes No
Skilling.com Yes 100 £/€/$ or 1000 NOK, SEK No No
Spreadex No $1 No No
TD Ameritrade Yes None No Yes
TradeStation Yes $500 Yes No
Trading212 Yes €/£/$100 No No
UFX Yes $100 Yes No
VantageFX Yes $200 Yes Yes
Videforex Yes $250 No Yes
XM Yes 5 $/€/£ Yes Yes
XTB Yes $250 Yes No
ZacksTrade No $2500 No No
ZuluTrade Yes $1 to $300 (Broker choice dependent) Yes No

What is a Trading Platform?

The trading platform is the software used by a trader to see price data from the markets and to place trade orders with a broker. Market data can either be retrieved from the broker in question, or from independent data providers like Thomson Reuters. In this section, we detail how to pick the best trading platform for day traders

Normally a broker will offer their customers a branded trading platform that’s more or less unique to that individual broker, but there are also independent platforms that can connect to multiple brokers. An independent platform can be a good choice for the experienced trader, while using a broker’s own platform is the easiest way to get started for beginners.

How an Independent Trading Platform Works

Trading Platform Features

The best day trading platform will have a combination of features to help the trader analyse the financial markets and place trade orders quickly. In particular, a top rated trading platform will offer excellent implementations of these features:

  1. Access to current and historic market data – A day trader needs to be notified of market price changes as soon as possible to be able to act before an opportunity is gone or a loss is materialised. Historic data is necessary for technical analysis and backtesting of trading strategies. Not all platforms have a backtesting feature though, so check before you commit to a specific software.
  2. Charting and other visual aids – Trends and market sentiment are best visualised through different charts and plotting of relevant technical indicators.
  3. Order execution – Once you have decided to place a trade, it needs to be executed on the market immediately. A great platform and broker will execute in less than a second. Traders that use automated trading want even faster execution, usually counted in milliseconds, depending on the strategy used and how price sensitive it is.
  4. Automated trading – A platform that offers automation capabilities enables a trader to make market moves even if he/she is not at the computer at the time. The classic “stop loss” feature is a simple form of automation, but there are much more advanced platforms that enable you to program your own trading robot to carry out elaborate strategies or to react much faster than you can do yourself.
  5. Broker Independence (optional) – You might want to become an expert on all the features of your trading platform but still have the option to change which broker you use. The solution is an independent trading platform (listed below), that can connect to several different brokers.

Independent Trading Platforms Comparison

An independent trading platform is used for visualising market data and managing your trading, but it needs to connect to one or more brokers to actually place a trade on the market. These professional day trading platforms typically offer a more advanced interface than that of the average brokerage, and help you to find and place trades with one or more brokers of your choosing. Using an independent trading platform you don’t have to relearn a whole new software just because you change to a different broker.

Independent platforms often come with advanced features such as enhanced charting and pattern analysis, automated trading and trading alerts/signals. Different platforms have different strengths. NOTE – Not all brokers support this kind of integration with independent platforms, so use our reviews to find ones that do.

Trading Accounts

When choosing between brokers you also need to consider the types of account on offer. For example:

  • Do they offer cash and/or margin accounts?
  • Can you get managed accounts?
  • Do they offer a single standard account or do they offer different account levels?

The account that is right for you will depend on several factors, such as your appetite for risk, initial capital and how much time you have to trade. With that said, below is a break down of the different options, including their benefits and drawbacks.

Cash Accounts

Most day trading brokers will offer a standard cash account. This is simply when you buy and sell securities with the capital you already have, instead of using borrowed funds or margin. Most brokers will offer a cash account as their standard, default option.

Benefits

There are several benefits to cash accounts. Firstly, because there is no margin available, cash accounts are relatively straightforward to open and maintain. Also, you have less risk than margin accounts because the most you can lose is your initial capital. Finally, you don’t have to pay the interest costs that come with margin accounts.

Drawbacks

Trading with a cash account also means you have less upside potential because there is no leverage. For example, the same gain on a cash and margin account might represent a 50% difference in returns because margin accounts require far less capital.

In addition, you have to wait for funds to settle in a cash account before you can trade again. At some brokers, this process can take several days.

Overall then, the absence of margin means these accounts probably aren’t the right fit for the majority of active intraday traders.

Margin Accounts

Most brokers will offer a margin account. Essentially, this allows you to borrow capital to increase your position size. For example, you may only pay half of the value of a purchase and your broker will loan you the rest.

Note brokers often apply margin restrictions on certain securities during periods of high volatility and short interest.

Benefits

Margin accounts come with several benefits. Firstly, you can choose when you pay back your loan, as long as you stay within maintenance margin requirements. Secondly, you can leverage assets to magnify your position size and potentially increase your returns.

Also, interest rates are normally lower than credit cards or a bank loan. Finally, if you have a concentrated portfolio, you may be able to use existing securities as collateral for a margin loan.

Drawbacks

Despite the benefits, there are serious risks. With a cash account you can only lose your initial capital, however, a margin call could see you lose more than your initial deposit. You also have interest charges to factor in.

In addition, you need to check maintenance margin requirements. If not, you could get short-squeezed resulting in forced liquidation from a margin call.

Overall then, margin accounts are a sensible choice for active traders with a reasonable tolerance for risk.

Managed Trading Accounts

Some brokers will also offer managed accounts. A managed account is simply when the capital belongs to you, the trader, but the investment decisions are made by professionals. These might be referred to as an advisor on the account – these advisors have complete control of trades. There are two standard types of managed accounts:

  1. Pooled Funds – With this type of account your capital goes into a mutual fund along with other traders’ capital. The returns will then be distributed between the investors. Normally, brokers divide these accounts according to risk appetite. For example, those looking for large returns may put their funds into a pooled account with a high risk/reward ratio. Those looking for more consistent profits would probably opt for a safer fund. Minimum investments for pooled accounts are around $2000.
  2. Individual Accounts – With this account, your broker will manage your capital individually and make investment decisions tailored to your needs. The main benefit is having an experienced professional on your side. However, you will pay for that privilege with account maintenance fees and commissions. In addition, some brokers will impose high minimum investments of at least $10,000.

Overall, managed accounts are a good fit for those who have significant capital but little time to actively trade. However, those with less capital and those with time or the inclination to enter and exit positions themselves may be better off with an unmanaged account.

Account Levels

Some discount brokers for day trading will offer just a standard live account. However, others will offer numerous account levels with varying requirements and a range of additional benefits.

For example, a Bronze account may be the entry level account. Here you may get access to chat rooms, a weekly newsletter and some financial announcements and commentary. These entry-level accounts normally have low deposit requirements.

If you were to deposit more, say over $1000 and make a certain number of trades each month, then you may be eligible for a Silver account. This may grant you access to courses, a personal account executive and more in-depth market commentary.

Deposit a bit more, $5000 for example, and you may be eligible for a Gold account. For this you could get:

  • 10% deposit bonuses
  • Daily market research
  • Referral incentives
  • A dedicated trading mentor
  • Telephone access to an active trading community

Finally, some brokers will offer a top tier account, such as a VIP account. To qualify for this account you might need to deposit upwards of $20,000. You may also need to trade 500 lots quarterly, for example.

However, for your larger deposit, you might get even more hands-on help, as well as greater deposit bonuses, free trades and other financial incentives. You may also get full access to a wide range of educational and technical resources.

So, the best day trading discount brokers will offer a number of account types to meet individual capital and trade requirements. It’s also worth bearing in mind that generally, the more you can invest the greater the perks and trading experience.

Final Word on Accounts

When choosing between brokers, you need to consider whether they have the right account for your needs. The main factors to consider are your risk tolerance, initial capital and how much you will trade.

Note you can also open different accounts if you want to use several different strategies.

Regulation And Licensing

One key consideration when comparing brokers is that of regulation. There are a number of different regulatory bodies around the world. Reputation of these authorities varies, but almost all can give consumers a high level of confidence in the brokers they license. Here are some of the leading regulators;

FCA (Financial Conduct Authority) – UK regulator, with responsibility for all forms of trading and market speculation.

CFTC (Commodity Futures Trading Commission) – US Regulator overseeing broker.

SEC (Securities and Exchange Commission) – US regulator for exchanges and markets.

FSB (Financial Services Board) – South African Regulator

CySEC (Cyprus Securities and Exchange Commission) – Cypriot regulator, often used to ‘passport’ regulated brands across Europe

BaFin (The Federal Financial Supervisory Authority / Bundesanstalt für Finanzdienstleistungsaufsicht) – German regulator

Financial Supervisory Authority Denmark (Finanstilsynet)

The European Securities and Markets Authority (ESMA) also offers an over-arching guide to all European regulators, imposing certain rules across Europe as a whole – including leverage caps, negative balance protection, and a blanket ban on binary options. These rules only apply to retail traders, not professional accounts.

How to Try a Broker for Free

A demo account is a great way for beginners to practice trading and test a broker or trading platform without using real money. A demo account is funded with simulated money, so you can try out the broker’s platform features and get familiar with acting on the markets. A warning though – even the best practice platform can’t replicate the pressures that comes with having real money on the line, but it’s a great way to learn the basics and get started with zero risk.

How Brokers Make Money

Even among the best brokers for day trading, you will find contrasting business models. Having said that, there are two main types:

  1. Market Makers
  2. Over-the-counter (OTC) brokers

Market Makers

Some of the best brokers for day trading online are market makers. Market makers are constantly ready to either buy or sell, so long as you pay a certain price. That means they may lose out in price shifts before they find a buyer/seller.

But, of course, for taking that risk, they seek compensation. So they set the bid price marginally lower than listed prices while setting the ask price slightly higher. That tiny margin is where they will make their money.

Now that may seem like an insignificant amount. However, tens of thousands of trades are placed each day through good brokers for day trading that use these systems. Unsurprisingly, those minute margins can quickly add up.

Note day trading brokers using this model normally offer either fixed or variable spreads:

  • Fixed spreads – Do not change, regardless of what is happening in the markets. Due to the additional risk, fixed spreads tend to be wider than variable spreads.
  • Variable spreads – Fluctuate in response to market conditions. For example, during the London and New York overlap, an increase in liquidity leads to tight spreads.

Let’s take a look at an example – if you want to sell 50 shares of Tesla, good market makers will buy your shares, regardless of whether they have a seller lined up yet. However, they may buy those Tesla shares for $300 each (the ask price), while offering to sell them to another trader for $300.05 (the bid price). That $0.05 is where your online broker is making their money.

OTC Brokers

Many of the best discount brokers for day traders follow an OTC business model. In fact, they are the most popular type of day trading broker. The immediate lure is the apparent lack of trading costs and commissions. However, on the best day trading platforms, it isn’t quite that simple.

Essentially, an OTC day trading broker will act as your counter-part. They will take the opposing side of your position. As a result, you don’t have to pay a commission or fees in the same way. You are simply trading against the broker.

The best OTC futures or CFDs brokers, for example, may have both sides of the trade covered, promising a handsome margin. However, some of best brokers for day trading may also hedge to offset risk.

The Comparison

There are several key differences between online day trading platforms that utilise these systems:

  • Increased liquidity – Effectively the best brokers that follow the market maker model act as wholesalers, buying and selling to meet the needs of the market.
  • Costs – Without market makers, finding buyers and sellers may take longer. As a result, liquidity may drop and you may pay higher trading fees as entering and exiting positions becomes harder.
  • Motivation – A market maker will make money regardless of the outcome of your trade. Whereas an OTC broker has a vested interest in you losing out.

The top brokers for day trading will often use a variation of one of these models. Check reviews to see which model a prospective broker is using to get a feel for where and how they expect to make their profit.

Broker Payment Methods

Different trading brokers support different deposit and withdrawal options. The availability of one or more specific payment methods can be of importance to traders, as fees and transit times vary between methods. For some traders it might be essential that a deposit or withdrawal is instantaneous, while others are fine with a processing time of a few days. Any trader making frequent deposits or withdrawals surely wants to look out for low transaction costs. Below we list different payment methods, which brokers support them along with tutorials covering everything a trader needs to know.

Trading In Different Regions

With the world migrating online, in theory, you could opt for day trading brokers in India or anywhere else on the planet. However, there are tax considerations and regulations worth keeping in mind before you choose day trading platforms in Australia, Singapore or anywhere outside your country of residence.

  • Tax considerations – Where you trade and where your broker is situated may affect what type of tax and how much tax you will have to pay. Will you pay capital gains tax? Will you pay net income tax? If you start day trading with brokers from Canada, will you pay tax abroad and domestically? If you’re thinking of signing up with a far afield broker, find out the tax ramifications first.
  • Regulation – Regulation is important for a number of reasons, but your financial security is one of them. Opt for brokers regulated in well established financial systems, like the EU, USA or UK. A broker regulated in Bermuda is better than no regulation at all, but you may still encounter issues.

Canada and the US also have pattern day trading rules – but both are quite separate. Read more about this on the rules page. Just note that Canadian day trading platforms may differ significantly from both US or European versions, and platforms in South Africa will vary also.

Bottom Line

The broker you choose will quite possibly be your most important investment decision. Everyone’s requirements are different so there is no clear universal winner to turn to. Instead, in your comparison, consider which of the factors listed above are most important to you and then you’ll be able to find the best broker for your needs.

Further Reading

For Specific Countries

Market Impact of Coronavirus

Trading Brexit News is trending

Cryptocurrencies like Ripple and Bitcoin see a lot of volatility currently.

Day Traders: Retail vs. Prop Trading Accounts

Even if you aren’t an active trader, there’s a good chance you have some exposure to the stock market. In fact, almost everyone does. It may be through mutual funds or your IRA. But what if you want to turn that passive trading into an active strategy? If you want to be an active trader in individual stocks, you really only have two general paths: Become a professional trader (prop trader) or trade in a retail account.

Those looking to break into the day trading industry have a choice to make: open an account with a proprietary trading firm — also known as a “prop shop” — or one with a retail online broker? When evaluating account options, independent day traders often compare costs and account features but fail to realize the products are not exactly the same.

In this article, we will look at the key differences between proprietary trading and retail trading accounts to make comparisons more straightforward.

Retail vs. Prop Trading

Before we look at what sets these two accounts apart, it’s important to first understand how they differ.

The capital that’s traded in a prop trading account is usually that of a brokerage firm or hedge fund. Trades made through this account are typically speculative in nature. Products traded are usually derivatives or other complex investment vehicles. Trading activity is usually limited by a risk manager and by the amount of money a firm has.

Retail trading accounts, on the other hand, are much simpler. A retail trader will choose a broker, open up an account and make a deposit. After that, the trader can simply start making trades. Since you are a customer of the firm and you’re using your own cash rather than that of a firm, there’s far more flexibility on what trading activity you can undertake as well as how and when you can do it.

Fees and Commissions Differences

Retail brokers have a wide range of fee structures that tend to be very competitive. Most firms charge a flat per-trade commission along with a platform fee unless day traders meet certain minimums when it comes to trading volume or account size. These accounts may also come with ancillary fees like inactivity fees or account transfer fees. After the fees and commissions are all collected, the profits from your successful trades are yours to keep.

Prop shops tend to be more competitively priced than retail brokers with per share fees that decrease as trading volume increases. The firms may also charge a software or desk fee — although it is typically provided at-cost to day traders. With prop accounts, remember that the firm will likely take a portion of your profits. After all, you are trading the firm’s capital and not your own.

Either way, remember to inquire about the full fee schedule because they do vary. Knowing how much you’ll have to pay is an important part of opening and setting up your account.

Comparing Leverage

Retail brokers provide day traders with margin accounts that are subject to certain margin requirements and securities regulations. For example, Regulation T may limit the amount of leverage used in a retail account. Day traders must also have at least $25,000 in equity to execute more than three-day trades in a rolling five-day business period.

Prop shops provide traders with leverage based on the risk capital deposited and the firm’s own policies. Day traders with less than $25,000 don’t have to worry about minimum equity requirements and others have access to more capital than they would with a retail account. Buying power often increases over time if a trader performs well.

Taking Advantage of ECN Rebates

Most Electronic Communication Networks (ECNs) provide rebates to traders who add liquidity and they also charge higher fees to traders that remove liquidity from the market. Retail brokers generally don’t pass on these rebates to day traders since they route orders to the lowest cost destinations.

Prop shops enable day traders to take advantage of ECN rebates as a trading strategy. In fact, day traders may seek opportunities to add liquidity and collect rebates — all of which can be a significant source of income and influence order routing.

Comparing Educational Resources

Retail brokers provide a good level of educational resources, including training videos, trading seminars, visual media, and articles. These resources are designed to help traders understand the market and ultimately increase their trading volume.

Prop shops have much more incentive to educate traders since their own capital is at stake. In general, the training provided by these firms is much more hands-on and valuable. Traders should be cautious, however, with firms that charge upfront for training services.

Licensing the Account

One of the main differences between the two accounts is whether you require a license to trade. Professional trading requires licensing, which means the people making trades on your behalf — or you, if you’re a prop trader — may be required to obtain a securities license for a prop trading account. On the other hand, retail accounts don’t require any training or paperwork. That’s because you’re trading your own capital. This is one key benefit of using a retail trading account.

More Considerations

Retail brokers provide basic access to many assets and trading strategies such as stocks, options, and futures. The problem is that traders operate without outside resources, which can make it difficult to buy certain assets or execute certain strategies.

Prop shops can help traders identify shares on a threshold list for short selling, access liquidity in dark pools and access buying power to execute on more opportunities. These account features can provide a big advantage over the long run.

The Bottom Line

Most day traders begin with retail brokers due to their popularity, but ignoring prop shops can be a costly mistake in the long run. Prop trading accounts at firms such as T3 Live, Avatar Securities, Assent LLC, and Hold Brokers may be attractive options for some day traders. It’s important to carefully consider these differences when deciding between retail and prop trading accounts.

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