Welcome back everyone, I hope you all had a wonderful holiday. The market is closed today but there’s always time to learn…
And one thing I always get a ton of questions about is brokers.
Which one should I use? Should I open a cash account or a margin account? Do I need more than one account?
Those are all great questions. And I’ll answer them here today…
But the reality is that the answers might be different for each individual.
It all depends on what kind of trading you want to do, how big your account is, and what is most important to you depending on your strategy.
Let’s dig into all the possibilities below…
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Which Broker Should I Use?
This is one of those questions that depends on YOU. Everyone should do their own research on brokers to find the best one for them.
If you want to short sell, you need a broker with good borrows like TradeZero.
If you want exclusive features like the ability to replay market and chart action, open an account at TDAmeritrade to get their ThinkorSwim platform.
Read this to help you choose a broker that will work for you.
And remember, StocksToTrade has broker integration so you can trade right through our platform with supported brokers.
Should I Open a Cash Account Or A Margin Account?
This answer depends on the size of your account…
Most traders think that if they have a small account, they should get a margin account so they can use leverage. But that’s a slippery slope.
Using leverage allows you to take larger positions, but it also increases your losses when you’re wrong.
A margin account with less than $25,000 of capital will also make you subject to the pattern day trader rule (PDT). That will limit you to three day trades per five-day period.
Learn more about the PDT here.
On the other hand, having a cash account means you’re not subject to the PDT rule. So you can trade as often as you like.
But pay attention to each brokerage’s cash settlement times. You might have delays for cash to settle from one trade before you can open another trade.
See if a cash or margin account is right for you here.
Do I Need More Than One Brokerage Account?
The simple answer to this question is no, you don’t need more than one account to trade.
But there are advantages to having multiple accounts…
First, if want a margin account but have less than $25,000, you can spread your funds over multiple account so you get three day trades for every five-day period in each account.
For example, if you had three margin accounts you would have nine day trades per five day period.
Second, if you’re an experienced trader with more than one strategy, multiple accounts can help you in two ways…
You can use one account for day trading and one for swing trades.
Or you can use one for long trades and one for short trades.
Of course, it’s not necessary to split up your strategies into different accounts. But it can help you keep better track of which strategy is working based on your account growth (or lack of it).
And if you’re tempted to exit your swing trades early when you see profits, having a separate account can help you hold longer when you’re not looking at that position all day in your day trading account.
Picking the right broker is an important decision. It’s where you’ll keep all your trading funds and it’s how you execute trades.
Make sure you’re happy with the service and execution you get. If you’re not happy, try a different broker. There’s nothing that says you’re locked in and have to keep your money there.
Do some research now while the market’s closed and make sure you’re armed with a broker and executions that are ready to work for YOU in 2023!
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade
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