Last Updated on 17 February, 2024 by Rejaul Karim
The advent of the internet ushered in a new era in the investing world, where you can trade stocks and other financial assets in real time from home, and brokers have made different forms of trading possible, including swing trading.
Swing trading is a kind of trading where you live your trades for a few days or up to some weeks. This trading style aims to capture the medium-term price moves, which are the usual price swings on the daily timeframe, so technical analysis and trading are done on the daily timeframe. While swing trading is not as fast paced as intraday trading, you still need a reliable broker to succeed in the game.
But which broker is best for swing trading? We will take a look at them in this post, but first, let’s find out who a broker is and the criteria for assessing the quality of a trading broker.
Who is a trading broker?
In the world of financial trading, a broker is a financial service provider that connects a trader to a security exchange. In other words, it acts as an intermediary between a trader and the security exchange where the asset is traded. Individual traders need the services of an exchange member to buy or sell a security because securities exchanges only accept orders from member brokers.
To be able to link traders’ orders to the security exchange, the broker must either be a member of the exchange or work with another broker who is a member of the exchange. Brokers are compensated for their services either through commissions and trading fees or by being paid by the exchange itself or the receiving market maker broker.
In addition to routing clients’ orders to the marketplace, brokers may also offer market research, investment plans, and market intelligence services to traders and investors. Brokers may also sell other related financial products and services, such as asset management or access to a private client offering that provides tailored solutions to high net worth clients.
Before the advent of the internet, only the wealthy could afford a broker and access the stock market and other financial markets. However, the coming of online broking triggered an explosion of discount brokers, making it possible for traders and investors to trade by themselves at a lower cost, without personalized advice. But the traditional brokerage setup still exists, so we have two types of brokers:
- Full-service brokers
- Discount brokers
Full-service brokers are the traditional brokerage firms that offer a variety of services, including market research, investment advice, and retirement planning, in addition to a full range of investment products. These services are more suited to long-term investing, so they tend to serve long-term investors who can afford to pay higher commissions for all those services, rather than swing traders who make several trades per week or month and can easily accumulate huge amount in commissions.
Apart from commissions, full-service brokers receive compensation from the sale of investment products. These days, more and more brokers offer fee-based investment products, such as managed investment accounts.
Discount brokers operate online trading services and offer significantly lower trading fees and commissions. However, they do not offer any kind of investment advice as per which stocks to buy or how to plan your retirement. With a discount broker, you are completely on your own. However, if your intention is swing trading or day trading, your best bet is a discount broker because of the lower trading fees and commission. After all, you won’t be needing any advice from a broker to know which stocks to buy or sell as an active trader.
But wait first! Before you go out there to sign up with an online discount broker for your swing trading journey, you need two know how to choose the best online brokers for swing trading. So, let’s take a look at the criteria for assessing the quality of an online discount brokerage service.
Criteria for assessing the quality of an online brokerage service
There are many factors you can consider when assessing the suitability of a trading broker, but here, we will focus on a few important ones, such as these:
- The type of discount broker
- The resources
- The trading fees and commission
- Trade execution speed and consistency
The type of broker
You already know that the right brokers for swing trading are discount brokers because of their reduced fees and commissions, not all discount brokers are the same. Some route the trade orders they receive to a third-party broker who then executes the orders, while some have direct access to the security exchanges.
Non-exchange member brokers
This set of brokers are not participating members of the security exchange where you want to trade, so they have to route the orders they receive to a third-party broker who compensate them for the routed orders (kickback). This sort of compensation is known as payment for order flow. The problem with this model is that you may not be getting the best price and it can take significantly longer to get your order filled.
In some situations, these brokers may fill your order in-house from their inventory and profit from it! This allows them to avoid paying ECN fees, and your order may not even go to the market at all. In other words, the broker is taking the opposite end of your trades, which can cause a conflict of interest. So, this sort of brokers may be profiting off you a lot more than just the commissions and trading fees that they charge since they control over how the order gets routed.
Many of the brokers in this group use web-based trading platforms, where you will enter your order to buy or sell stocks right from your browser without first downloading any kind of trading software. The trading platform runs directly on the broker’s website. Just by going to the broker’s website, the trading screen pops up where you can fill in your order. The broker takes your order and then routes it to a third-party or executes the order in-house. More or less, this process is kind of like sending an email to the broker with a buy or sell order, and they do what they want with it.
Direct-access online brokers
These are brokers that are members of the security exchange you are trading. With a direct-access broker, you are trading directly on the marketplace ECN via a software application that links your orders to the market. There is no middle-man involved and no broker intervention. You control how your order gets routed to the various exchanges, so it’s just you and the market. The broker’s platform simply acts as a conduit for sending your orders to the market.
To trade with a direct access broker, you will need trading software to execute your trades. The broker may provide this for you, or you may have to subscribe to a third party software solution, like TradingView, to take care of your needs. But check with your broker to know the various available trading applications.
In deciding the right broker for your swing trading, you should consider the trading resources the broker provides. Some of the tools to consider include:
- trading platform,
- charting tools
- real-time quotes
- price history
- stock screeners
- technical analysis tools
- trade management tools
- news feeds,
- premium research
- other trading education resources
It is quite rare for a broker to provide you with all the tools you will need for your trading. Most brokers only provide some of these tools, and you have to source the others yourself. Many of those that provide the tools will often charge you for them.
The trading cost
The trading cost goes beyond commissions and the ask-bid spread you pay for each trade. In addition to the commissions charged for your trades, you may be charged for ECN (Electronic Communications Networks) fees. These fees are charged to the customer for gaining direct access to the networks.
You may be charged for the charting tools and market data. The market data fees are charged for access to the data that feeds your software application. Other fees may include charges for premium technical analysis and market research. Some of these tools may be optional; you only pay for the ones you need. But check with your broker to find out their specific fee schedule and the tools you can do without.
Trade execution: speed and consistency
Unlike day trading which is fast paced and requires quick execution, for swing trading, the execution speed is not the most important thing because you trade off the daily timeframe, which takes a full trading day to print a new price data.
Nonetheless, you need to be sure that whenever you place an order, it goes through. You don’t want to lose connection to your broker anytime you want to place an order or adjust your open positions in the market. In other words, you have to choose a broker with a good connection and consistency in trade executions.
The best brokers for swing trading
Now, let’s take a look at some of the popular trading brokers out there but not in any specific order. Here, we will be briefly discussing each of the following brokers:
- Fidelity Investments
- Merrill Edge
- TD Ameritrade
- Interactive Brokers
- Ally Invest
- Charles Schwab
- Zacks Trade
Fidelity is one of the best online discount brokers. It provides traders with the Active Trade Pro platform and the Fidelity mobile app, which are easy to use, highly customizable, and full of market research. The broker charges no fees on stocks, ETFs, or OTCBB (penny stock) trades. While no-fee stocks and ETF trades are now commonplace, it’s rare to see a broker that offers no-fee on penny stocks.
The broker stands out in market research for its 16 equity research reports, excellent in-house market analysis, and quotes experience that is meticulously crafted for maximum usability. Another edge for Fidelity is its order execution. Over 96% of the broker’s orders are filled at a price that is better than the national best bid or offer, which is cost savings for swing traders who are active in the market compared to long-term investors.
Merril Edge is the online discount brokerage arm of the Bank of America (BofA). The broker delivers $0 stock and ETF trades with fantastic research and customer service. In fact, for current banking customers of the BofA, Merrill Edge’s Preferred Rewards program offers the best rewards benefits across the industry.
While you do not have to be a Bank of America customer to open an account with Merrill Edge, it is far easier to reach the minimum combined account balance to earn all sorts of perks under the Preferred Rewards program if you are a BofA customer. The broker offers environmental, social, and governance research, which is highly insightful, and they offer great customer service.
E*TRADE is one of the first online brokerages in the United States having been established in 1982. The broker knows what investors need to succeed in the market, which includes low-cost trading and robust platforms. Hence, E*TRADE offers $0 trades, two excellent mobile apps, and the Power E*TRADE platform for options trading.
The broker’s excellent web platform combines the best of both worlds — ease of use and a fantastic array of trading tools. It is good for stock trading and options trading. There are also the full-featured mobile apps, which are among the best of all the online brokers’ mobile apps, with a well-designed interface and easy to use experience.
TD Ameritrade is one of the largest online discount brokers and has made significant efforts to market itself to beginner traders through social media. The broker offers the thinkorswim platform which is available in desktop, web, and mobile versions. It delivers the ultimate package for investors, including $0 charges on trades, excellent market research, industry-leading education for beginners, and reliable customer service.
With education being a key component of TD Ameritrade’s offerings, you’ll find expanded learning pathways, ranging from beginner to advanced, to help you understand everything about trading from basic trading concepts to extremely advanced derivatives strategies. If you want, you can open an account without making a deposit and poke around to take advantage of all the learning opportunities until you’re comfortable and ready to start trading. This broker wants beginner traders to become more confident and trade as their skills grow.
Interactive Brokers is one of the online discount brokers with access to many international security exchanges. The broker enables swing traders to trade a wide array of instruments on a global scale with access to over 125 markets in 31 countries. With the broker, you can trade stocks quoted on European and Asian exchanges.
The broker offers the Traders Workstation (TWS) platform, which is excellent across the board and can only be rivaled by a few trading platforms. The TWS platform is highly customizable with a wealth of analysis tools to find your next trading opportunity, and the broker offers a vast array of order types. Perhaps, the only real weakness the broker has is the fact that it still charges commissions (albeit still very low) while the rest of the industry has moved to zero commission.
TradeStation is an online discount broker that is designed to cater to cost-sensitive active traders, such as swing traders and day traders, offering commission-free trades on stocks and ETFs, as well as competitive commissions on options, mutual funds, and other investment vehicles. The broker’s low minimum investment (no minimum for the basic TS GO plan) makes them accessible to both new and wealthy investors.
The broker’s platform, TradeStation 10, is a powerful desktop trading platform with all the functionality an active trader looks for, including complex charting capabilities and capacity for automated trading strategies. The platform also has a highly functional web trading platform and a feature-packed mobile trading app.
Firstrade is an online discount broker that appeals to experienced swing traders with three customizable trading platforms that allows you to trade with a computer, Ipad, and mobile phones. The broker offers $0 trading costs and no per-contract fees for options trades. Beginner traders will appreciate its $0 account minimum to start trading, while investors looking for long-term investments will also enjoy its commission-free trades for all mutual funds.
The broker serves international clients, including Chinese traders and investors, as its platform is available in the Chinese language too. In addition to free stock and options trading, Firstrade charges no commission for mutual funds — a deal no other broker can rival.
Ally exemplifies what it means to be a discount brokerage firm as the broker offers one of the most competitive pricing structures at $0 per trade and no minimum deposit, as well as a mutual fund transaction fee that is one of the lowest, and those are the features to look for when picking the best stockbroker.
Both active swing traders and investors with large account sizes get even lower commissions on stock, option, and ETF trades, making it a compelling bargain for swing traders who make many trades and consider trading cost a particularly important factor in picking a brokerage firm.
Schwab is a full-service investment firm that provides financial trading services and technology to everyone, from self-directed active traders to long-term investors who want the guidance of a financial advisor. The broker has a wide variety of platforms to choose from, in addition to full banking capabilities.
One of the broker’s interesting trading tools is the Schwab’s ETF screener on the StreetSmart Edge platform. The ETF screener has over 150 criteria that can combine fundamental, technical, and third-party data for selecting the most suitable ETF. It is extremely customizable and your criteria combinations can be saved for future re-use. The broker charges $0 for stock trades and offers a lot of trading tools that are useful to active traders, including the analysis, news, and research offerings that are among the deepest of all the brokerage firms.
tastyworks is an innovative broker with a robust trading platform and offers lots of market research. All of the tools you’ll need for analyzing and trading derivatives are built into the tastyworks platform. The charting capabilities are uniquely tuned for the options trader, and there are hours of original videos from tastytrade every weekday, offering up-to-the-minute trading ideas, plus a huge library of pre-recorded videos and shows.
The broker pioneered option trading for retail traders. With the lowest out-of-pocket costs, tastyworks fits that bill well, as customers pay no commission to trade U.S. equities online, and there is no per-leg fee for options trades. The broker has a unique fee structure for options trades, charging $1 per contract to open a position, while it doesn’t charge for closing trades. Also, there is a maximum of $10 per leg for options trades, which is beneficial to traders who place large spread orders.
Robinhood is a commission-free trading broker that aims to serve the millennials. The broker started with a mobile app but now offers a web platform as well. Robinhood is truly free with no hidden costs. It makes money from several sources, from interest on cash in its accounts to selling order flow to large brokerages.
However, in exchange for free trades, you’ll give up a few things, such as direct access to the marketplace, useful trading tools, research, education, and investment options beyond stocks and ETFs. If limiting costs is your main concern, Robinhood is a great choice.
Which broker is best for swing trading?
Surely, you want to use a discount broker as the low/no-commission offering helps to reduce the cost of trading. But then, the discount brokers operate differently with different features — some offer direct access to the market, while others don’t.
You will have to choose the broker that offers you the things you consider important to your trading approach. If you want more control over how your trades are handled, look for a “direct access” broker, but if the trading cost is your concern, look for the one that charges no commission. Finding a good online broker can be very time consuming, but it can make the difference between a losing year and a profitable one!
Do not miss our swing trading archive with lots of great articles bout swing trading.
What services do brokers offer besides executing trades?
Brokers may offer market research, investment plans, and market intelligence services. Additionally, some brokers sell other financial products, such as asset management or private client offerings tailored for high net worth clients.
What services do Full-Service Brokers provide?
Full-Service Brokers offer a range of services, including market research, investment advice, retirement planning, and a variety of investment products. These services are more suitable for long-term investors.
What distinguishes Discount Brokers from Full-Service Brokers?
Discount Brokers operate online, providing significantly lower trading fees and commissions. However, they do not offer investment advice and are more suitable for traders who prefer lower costs and are capable of making independent trading decisions.
What factors should be considered when choosing an online brokerage service?
Important factors include the type of broker (direct access or non-exchange member), available resources (trading platform, charting tools, real-time quotes), trading fees and commissions, trade execution speed and consistency.
How can I determine which broker is best for swing trading?
The best broker for swing trading depends on individual preferences. Discount brokers are generally preferred for their low/no-commission offerings. Traders should consider factors like direct access, trading costs, and available features when making a choice.