I am a firm believer that for many traders, the only difference between being profitable and losing money is the tools that they have available to them. This is the entire reason that I have created the KAF Investing Trade Room. To help provide the tools that new traders need to become profitable and successful.
When I first started trading, I tried nearly every chat room out there, and I saw the need for a chat room that provides the full arsenal of tools that were required for both brand-new traders and experienced professional traders alike to be successful in the stock market.
One of the most crucial tools to being profitable is having the right broker and trading platform. Which brings me to the Robinhood app.
I admire the creators of Robinhood and have tremendous amount of respect for them. They have helped create incredible interest from new traders and provided a free and easy way for them to dip their toes in the water. Robinhood is great for just that, dipping your toes in the water. If you are reading this, it is likely that you are interested in more than just dipping your toes in the water. You want to be a profitable trader. Maybe you are down 20% since first investing and want to turn your portfolio around. You may be looking to trade to add some additional income on top of your regular job. Perhaps you even want to trade for a living and join the professional ranks. If that is you, then I strongly recommend that you stop trading with Robinhood.
Robinhood makes it very difficult to day trade successfully. A day trade is when you buy and sell a stock in the same day, and often within only a few minutes each other. The mobile only platform of Robinhood makes it extremely difficult to take advantage of many of the incredible tools that have been created to buy and sell a stock quickly.
On top of that the Robinhood application has a history of crashing and preventing people from buying a stock or selling a stock that they already own. Can you imagine buying a stock with the intention to sell in a few minutes, only for the app to crash and must wait hours or maybe even a full day before being able to sell it? You would be risking the stock crashing and significantly damaging your portfolio, especially if you were trying to day trade a momentum penny stock which often comes crashing down after its spike is over. The point is, if you want to get serious about being a trader, you need to strongly consider moving on from Robinhood.
Before I get in to all your different options for brokers, first you need to understand what the famous, and often hated “PDT” rule is. I will provide a basic rundown on the Pattern Day Trader rule, but I strongly suggest checking out my blog on PDT for further explanation.
Understanding what the PDT rule is crucial because most new traders will have to deal with it. However, if you are interested, there are some options available to work around it. The PDT rule or the “Pattern Day Trader” rule prevents traders who have an account with funds under $25,000, from making more than three day trades in a five day period, or in other words, three day trades a week. This rule was initiated back in 2001 to help protect new investors from some of the inherent risk of day trading. When I first began to trade I hated this rule.
However, as I have grown as a trader I know see that the rule is beneficial to new traders as it forces them to make the absolute most out of their day trades and wait for the perfect set ups to take advantage of. It also forces new traders to sit on the sidelines and learn while watching the different stocks form patterns, and come out of those patterns. In my opinion, this is the best part of the PDT rule as it helps with the ever so common “over-trading” problem that traders often destroy their accounts with. Like I mentioned previously though, if you refuse to deal with the PDT rule, there are some options.
The PDT rule only applies to margin accounts, meaning that if you had a cash account you could make as many day trades as you want. The problem with cash accounts though, is that the money you use to make a day trade becomes unavailable until after three days from the date you made the trade, or more commonly referred to as “T+3”.
The PDT rule is a rule that only applies to U.S. citizens, so if you are not a U.S. citizen, you need not worry about it. “TradeZero” is a new brokerage that is only available to non-U.S. Citizens and they offer free trades, similar to Robinhood, but with a better platform than just a phone application to make the trades from.
“SureTrader” is another overseas broker that allows you to avoid the PDT rule but this broker accepts citizens as well. SureTrader is the most popular option when it comes to U.S. citizens trying to avoid the PDT rule. UStocktrade is another broker that allows you to avoid the PDT rule and it does that by requiring a cash only account, but the benefit to them is that they require T+0 instead of T+3 so that your funds are available to day trade again more quickly. I will discuss these options more in depth below.
There are 100’s if not thousands of options when it comes to picking a broker and it would be impossible for me to discuss every one. So, this not an all inclusive list. Instead, I have selected four brokers that I believe are most beneficial to know about when making your decision. Also, keep in mind that many brokerages are open to negotiating commission fees. For example, I use TD Ameritrade and their commissions are $6.95 a trade. But, because of how frequently I trade, I called them and kindly requested that they lower them for me, which they did, and they are now $2.95 a trade.
Commissions: $2.95 – $6.95/trade
Required account minimum: NONE
Platform: Thinkorswim FREE
If you have spent some time in the chat room you have heard me talk about the “thinkorswim” platform that TD Ameritrade offers for free. I love it, and I will likely use that for a long time. It provides all the tools that I need to successfully day trade. It takes some time to get used to, so I recommend checking out my video lesson on Youtube where I demonstrate how to set up the platform in my favorite way. They also have paper trading which allows you to practice executing trades. TD also provides some promotions like 300 free trades when you switch over, and depending on how much you fund your account with they will also give cash incentives to switch.
Check out this overview of the Robinhood App as compared to ThinkorSwim:
Although Thinkorswim has all the tools a new day trader may need, there are other reputable brokerages that provide similar tools for success. If TD Ameritrade is not your cup of tea, check out some alternatives below.
Platform: ETRADE PRO – $99/month or 30 trades a month
ETRADE is also a great broker that is very reliable. They have a fantastic platform somewhat similar to TD’s thinkorswim platform, but they charge $99 a month to use it, unless you make 30 day trades a month then it is free. I am not as familiar with their Pro platform but from what I understand you can also set up the bracket orders like I demonstrated I use in thinkorswim.
PDT rule: NONE
UStocktrade can do this because they are an “alternative trading system” (ATS). This means that they have basically created their own little Nasdaq exchange that mimics the actual Nasdaq exchange. They have their own set of market makers to fill your trades. In other words, this means they are basically betting against you. I’m not suggesting they would try to pull fast ones on their customers but it is interesting that they make money when you lose it, and vice versa, because it is a peer to peer trading system. Just something to keep in mind. It seems to be legitimate though and is improving. Downside is that they don’t have any sort of trading platform or ability to set stop buy orders or stop losses etc. So, yes, they solve much of the issues of the PDT rule which can be great for only $1 a trade, but you don’t have many of the tools that a bigger more legitimate broker like TD, or Etrade have to offer.
Platform: SureTrader Pro $49/month
Level 2 Quotes: $15
Suretrader allows you to avoid the PDT rule even if you are a U.S. citizen. They also provide a platform although the fees to use it are very high. Commissions are also some of the highest on the market. So, they definitely make you pay for getting around the PDT rule and those fees can really add up. I also have some trading partners who have had trouble getting their money in and out of Suretrader and it can take weeks at times. They also charge a 3% fee of the total sum of your money that you transfer in and out of your account. The commissions you pay per trade depend on the volume you trade so look it up if you want to get more details son that as it can be somewhat complex.
In conclusion, choosing a broker and platform to trade with is a very serious decision to make. It will have a huge impact on how successful you can be as a trader. It is important to do your proper research when making the decision. If you are not trading with a community, or need professional trade mentoring, check out our Trade Room free for 7 days!