Brokers for Active Traders

Best online brokers for day traders

Most online brokers now compete to offer potential customers sophisticated trading, analysis and research tools, but a few really excel in this area. Those that do offer investors customizable platforms, cutting-edge charting and research services, dynamic streaming quotes, tools for risk management, and the ability to place orders that go directly to the market. Most also allow access to foreign markets, and they offer a wide range of investment products. They are most suitable for active traders, not for long-term investors.

Of these online brokers, Interactive Brokers (IB) stands out as both a low-cost and a high-technology choice. SmartMoney names it best in the category of commissions and fees, noting that this broker charges a commission of only $.005 per share for trades of up to 1,000 shares. IB comes in third among the 23 firms included in Barron's 2008 rankings. Barron's editors write that IB not only charges the lowest commissions on stocks and options but also has the lowest margin fees and pays near the top interest rates for cash (more than $10,000). The minimums to open an account are $10,000, $4,000 for IRAs and $3,000 for those ages 21 and under. Account holders are required to spend at least $10 monthly in commissions and market data fees; otherwise they are assessed an activity fee of the difference between the amount spent and $10, up to $10 total.

Interactive Brokers markets its services to those who trade globally; this online broker provides access to 70 markets in 17 countries, according to its website. Customers place orders through its proprietary platform, Trader Workstation. The platform is available in both a browser-based and a standalone format. According to Barron's, IB recently incorporated an Order Wizard that guides users through the process of placing an order (40 order types are offered), making the platform easier to master. Subscribers to Technical Analysis of Stocks & Commodities voted to give Interactive Brokers three 2008 Reader's Choice Awards: best stock broker overall and best direct-access stock and futures broker. Barron's names IB one of the best brokers for options, international and frequent traders. The one downside, editors at Barron's say, is customer service; they say that IB is not suited to those who need a lot of handholding.

TradeStation is the big winner in the 2008 Barron's review of online brokers. It is named best broker overall and the best in three of the other four categories. As Barron's editors explain, this online broker is not for everyone -- the average TradeStation customer makes 640 trades per year. TradeStation is software based; there is no browser-based access to accounts. It's also not inexpensive, except for heavy traders. Those who don't make a certain number of equities, futures, options, and forex (foreign exchange) trades per month pay $99.95 each month to use the software platform. Investors may pay either flat-fee or share-based commissions. Per-share commissions range from $1 for 100 shares to $8 for 1,000 shares, while flat-fee costs range from $9.99 each for up to nine trades per month to $6.99 for 30 or more trades per month. The account minimum is $5,000 for those who aren't day traders.

Barron's particularly likes this firm's trading technology and its "powerful" analysis and charting capabilities. TradeStation's software platform, which is customizable, also includes OptionsStation for options trading and access to a database for historical data. The platform provides minute-by-minute quotes, automatically updates charts, and executes market orders in a split second, according to Barron's. Technical Analysis of Stocks & Commodities readers give a 2008 Reader's Choice Award to TradeStation for best futures broker overall, and the TradeStation platform is voted best trading system for stocks, futures and options. Management at TradeStation is responsive to the needs of customers: There is an online community, and enhancements to the trading platform are made based on suggestions from the traders who use it.

Thinkorswim is named runner-up for best broker overall in the 2008 Barron's review. Thinkorswim has a software platform that users can download and use free of charge, but investors can also make trades via its website. Commissions are a flat-rate $9.95 per trade regardless of how many are made, and it takes only $500 to open an account. This online broker offers many of the same cutting-edge trading and analysis tools that TradeStation does; in addition, it makes a concerted effort to educate investors, both online and through live seminars offered in cities across the country. It offers a broad range of investment products but not much access to foreign markets. Customer service is rated excellent by reviewers. Barron's considers Thinkorswim and TradeStation the best of the online brokers, but acknowledges that "both are technological marvels that are probably too much for those who don't want all the real-time bells and customizable whistles."