Day trading can be an exhilarating and potentially rewarding venture, but it's also incredibly demanding and carries significant risks. If you're considering jumping into the fast-paced world of day trading with ETRADE, you've come to the right place. This comprehensive guide will walk you through the essential steps, from understanding the basics to leveraging ETRADE's powerful tools.
Ready to Dive In? Let's Start Your Day Trading Journey with E*TRADE!
Before we get into the nitty-gritty, let's set the stage. Day trading involves buying and selling financial instruments within the same trading day, aiming to profit from small price fluctuations. It requires discipline, a deep understanding of market dynamics, and robust tools. E*TRADE, a leading online brokerage, offers a suite of resources that can assist day traders. However, it's crucial to understand that day trading is not suitable for everyone and can lead to substantial financial losses.
Step 1: Understand the Fundamentals of Day Trading
The first and most critical step is to equip yourself with a solid theoretical foundation. Don't even think about placing a trade until you grasp these core concepts.
1.1 What is Day Trading?
Day trading is defined as the practice of buying and selling a financial instrument within the same trading day. This means all positions are typically closed before the market closes. The goal is to capitalize on short-term price movements, often driven by news, economic data, or technical indicators.
1.2 Key Concepts and Terminology
Liquidity: The ease with which an asset can be converted into cash without affecting its market price. Highly liquid stocks are preferred for day trading.
Volatility: The degree of variation of a trading price series over time. High volatility offers more potential for profit but also greater risk.
Spread: The difference between the bid (buy) price and the ask (sell) price. A tighter spread is generally better for day traders.
Margin: Borrowed money from your broker used to purchase securities. While it amplifies potential gains, it also significantly increases potential losses.
Pattern Day Trader (PDT) Rule: A FINRA rule that applies to margin accounts. If you execute four or more day trades within five business days, and these trades constitute more than 6% of your total trades in the margin account during that period, you will be designated a Pattern Day Trader.
1.3 The Pattern Day Trader (PDT) Rule and E*TRADE
As a potential day trader on E*TRADE, the PDT rule is paramount.
Minimum Equity: If you're designated a Pattern Day Trader, you must maintain at least $25,000 in your margin account at all times. This minimum equity must be present before you open trades.
Margin Calls: If your account value falls below $25,000, you'll receive a day trading minimum equity margin call. Your account will be restricted until you bring the equity back above the threshold, and your buying power will be limited.
Cash Accounts vs. Margin Accounts: The PDT rule primarily applies to margin accounts. While cash accounts don't have the $25,000 minimum, they are subject to "free riding" rules. This means you cannot sell securities bought with unsettled funds. An instance of free-riding can lead to a 90-day restriction on your account, forcing you to pay for purchases upfront. For active day trading, a margin account is generally necessary to have sufficient buying power and flexibility.
Step 2: Set Up Your E*TRADE Account for Day Trading
Once you understand the basic landscape, it's time to prepare your E*TRADE account.
2.1 Choose the Right Account Type
For day trading, you'll almost certainly need a brokerage margin account.
Brokerage Account: This is your standard investment and trading account where you can buy and sell stocks, ETFs, options, and more.
Margin Account: This account allows you to borrow money from E*TRADE to increase your buying power. This is crucial for day trading strategies that require significant capital and leverage. Remember the risks associated with margin trading – you can lose more than your initial investment.
2.2 Fund Your Account Adequately
Given the PDT rule, if you intend to day trade frequently (i.e., become a Pattern Day Trader), you'll need to deposit at least $25,000 into your margin account. Even if you don't immediately hit the PDT threshold, having a substantial capital base is essential for absorbing potential losses and allowing for more significant trades. E*TRADE offers various funding methods, including electronic transfers, wire transfers, and check deposits.
2.3 Understand E*TRADE's Fee Structure
While E*TRADE offers $0 commission for online US-listed stock, ETF, and options trades, there are nuances for active traders:
Options Contracts: The standard options contract fee is $0.65 per contract, which can be reduced to $0.50 per contract for clients who execute at least 30 stock, ETF, and options trades per quarter.
Futures Contracts: Futures transactions cost $1.50 per contract per side plus fees.
Other Fees: Be aware of potential fees for OTC stocks, live broker assistance, outgoing wire transfers, and certain market data subscriptions (e.g., Level II quotes). These small fees can add up quickly with high-frequency trading.
Step 3: Master E*TRADE's Trading Platforms
ETRADE offers a couple of robust platforms, with **Power ETRADE Pro** being the go-to for serious day traders.
3.1 Power E*TRADE Pro: Your Day Trading Command Center
This desktop platform is designed for active traders and offers advanced features:
Customizable Layouts: Build your ideal workspace with multi-monitor support and nearly unlimited customization options for tools and charts across multiple workspaces. You can even move windows outside the platform's frame.
Advanced Charting: Utilize 16 chart types, over 120 technical studies, and 30+ drawing tools. You can trade directly from charts, which is essential for fast execution.
Deep Market Intelligence:
Market Depth (Level II Quotes): Get a robust view of bid and ask prices beyond the best bid and ask, providing insights into market liquidity and potential price movements. This often requires a subscription fee.
Real-time Streaming News: Stay on top of market-moving events with integrated news feeds and Bloomberg TV.
High Low Ticker: Monitor stocks hitting 52-week highs or lows.
Powerful Derivatives Tools:
Customizable Options Chains: Stream real-time price data and view the "Greeks" (delta, gamma, theta, vega) for options analysis.
Snapshot Analysis: Evaluate options trades with theoretical max profit/loss, break-evens, and probabilities.
Futures Ladders: For futures traders, these provide real-time contract prices and market depth for quick order placement.
Intuitive Trading:
Streamlined Order Tickets: Enter standard and conditional orders quickly.
Speed Keys: Use custom keyboard shortcuts for rapid order execution and tool access – critical for day trading where milliseconds matter.
3.2 E*TRADE Mobile App: Trading on the Go
While Power ETRADE Pro is ideal for dedicated setups, the mobile app (Power ETRADE) allows you to monitor positions and even place trades on the go.
Trade Stocks, Options, Futures, ETFs: Execute various order types directly from your smartphone or tablet.
Streaming Quotes and Charts: Keep an eye on market movements and perform basic technical analysis.
LiveAction Tool: Scan markets for unusual activity and volatility, even while away from your desk.
Alerts and Watchlists: Set up notifications for price movements or news on your chosen securities.
Step 4: Develop Your Day Trading Strategy
This is where the rubber meets the road. Successful day trading is rarely about luck; it's about a well-defined strategy.
4.1 Choose Your Instruments
Stocks: Highly liquid large-cap stocks are often preferred due to predictable movements and tight spreads.
ETFs (Exchange Traded Funds): Offer diversification and can be traded like stocks.
Options: Offer significant leverage but also carry higher risk. E*TRADE's platforms have robust options analysis tools.
Futures: Allow you to speculate on commodities, indices, or currencies. They are highly leveraged and move quickly.
4.2 Define Your Trading Style
Scalping: Making many small profits from minor price changes throughout the day. Requires extremely fast execution and intense focus.
Momentum Trading: Identifying stocks that are rapidly moving in one direction with high volume and riding that trend.
Breakout Trading: Entering a trade when a stock's price moves beyond a defined support or resistance level.
Reversal Trading: Attempting to profit from a change in a stock's trend. This can be riskier as you are trading against the prevailing trend.
4.3 Implement Risk Management
Set Stop-Loss Orders: This is non-negotiable for day traders. A stop-loss order automatically sells your position if it reaches a certain price, limiting your potential loss on a trade.
Define Your Risk Per Trade: Never risk more than a small percentage (e.g., 1-2%) of your total trading capital on any single trade.
Position Sizing: Determine the number of shares or contracts to trade based on your risk tolerance and the volatility of the asset.
Profit Targets: Have a clear profit target in mind before entering a trade. Don't be greedy; often, taking smaller, consistent profits is better than chasing large gains.
4.4 Utilize Technical Analysis
E*TRADE's charting tools are designed for this.
Indicators: Learn about common indicators like Moving Averages (MA), Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), Bollinger Bands, etc.
Chart Patterns: Identify patterns like head and shoulders, double tops/bottoms, flags, pennants, etc., which can signal potential price movements.
Volume Analysis: High trading volume often confirms the strength of a price movement.
Step 5: Execute and Analyze Your Trades on E*TRADE
Now, for the practical application of your knowledge.
5.1 Pre-Market Preparation
Check Economic Calendars: Be aware of major economic announcements that can impact market volatility.
Review Overnight News: Look for company-specific news or global events that could influence stock prices.
Scan for Opportunities: Use E*TRADE's Live Action scanner to identify potential stocks or ETFs exhibiting unusual activity or meeting your predefined criteria.
5.2 Placing Orders with Power E*TRADE Pro
Order Types:
Market Order: Executes immediately at the best available price. Use with caution as price can slip during volatile periods.
Limit Order: Buys or sells at a specified price or better. Crucial for day traders to control entry and exit prices.
Stop Order (Stop-Loss): Becomes a market order when a specified price is reached.
Stop-Limit Order: Becomes a limit order when a specified price is reached. This provides more control than a market stop but carries the risk of not being filled if the price moves too fast.
Hot Keys/Speed Keys: Configure these for lightning-fast order entry and cancellation. This is a game-changer for scalpers.
Trade from Charts: E*TRADE allows you to place orders directly from the chart, which can save precious time.
5.3 Monitoring Positions
Real-time Data: E*TRADE provides streaming real-time quotes, which is essential for making quick decisions.
Portfolio View: Keep a close eye on your open positions, unrealized P&L, and buying power.
Alerts: Set up price alerts to be notified when a stock reaches your entry or exit target.
5.4 Post-Trade Analysis
Review Your Trades: After each trading session, analyze your winning and losing trades. What worked? What didn't?
Journaling: Keep a detailed trading journal. Record your entry/exit points, reasons for the trade, emotions, and results. This is invaluable for learning and improving.
Adjust Your Strategy: Based on your analysis, refine your trading strategy and risk management rules.
Step 6: Continuous Learning and Adaptation
The markets are constantly evolving, and so should you.
6.1 Utilize E*TRADE's Educational Resources
E*TRADE offers a robust Knowledge Center with articles, videos, and webinars on various topics, including:
Investing Basics: Reinforce your foundational knowledge.
Advanced Trading: Dive deeper into options, futures, and margin trading.
Market News & Insights: Stay informed with daily and weekly perspectives from E*TRADE and Morgan Stanley experts.
Events: Attend live and on-demand webinars to learn from experienced traders and analysts.
6.2 Stay Updated on Market News and Trends
Beyond E*TRADE's resources, follow reputable financial news outlets, market commentators, and economic reports. Understanding the broader market sentiment is crucial.
6.3 Practice with Paper Trading (Simulated Trading)
Before risking real capital, utilize ETRADE's paper trading feature within Power ETRADE Pro. This allows you to practice your strategies in a simulated environment with real-time data, without any financial risk. This step is absolutely critical for new day traders.
Important Considerations Before Day Trading with E*TRADE
High Risk: Day trading is extremely risky and most day traders lose money. You should be prepared to lose all funds you dedicate to day trading.
Time Commitment: Day trading requires significant time and focus during market hours. It's not a casual hobby.
Emotional Discipline: The fast pace and potential for rapid gains or losses can be emotionally taxing. Stick to your plan, avoid impulsive decisions, and manage your emotions.
Capital Requirements: Beyond the $25,000 PDT rule, having additional capital provides a buffer for losses and allows for larger position sizes if your strategy proves profitable.
Tax Implications: Day trading generates frequent short-term capital gains, which are taxed at ordinary income rates. Consult a tax professional.
10 Related FAQ Questions (How To's)
How to open a day trading account with E*TRADE?
To open an ETRADE account suitable for day trading, navigate to the ETRADE website, select "Open an account," and choose a brokerage margin account. Follow the online application steps, providing your personal and financial information. Ensure you fund it with at least $25,000 if you anticipate becoming a Pattern Day Trader.
How to avoid the Pattern Day Trader (PDT) rule on E*TRADE?
To avoid the PDT rule, you have two primary options:
Maintain an account equity of below $25,000 in a margin account and limit your day trades to no more than three within a rolling five-business-day period.
Trade exclusively in a cash account, but be mindful of the "free riding" rule, which prevents you from selling securities bought with unsettled funds.
How to access Power E*TRADE Pro for day trading?
Once your ETRADE account is open and funded, you can download and install the Power ETRADE Pro desktop application from the ETRADE website. Log in with your ETRADE credentials to access the platform.
How to set up hotkeys for faster trading on Power E*TRADE Pro?
Within Power E*TRADE Pro, look for a "Settings" or "Preferences" menu. There, you should find an option for "Hotkeys" or "Speed Keys" where you can customize keyboard shortcuts for order entry, cancellation, and other common trading actions.
How to view Level II market data on E*TRADE?
Level II market data, which shows the depth of bids and asks, is typically available on Power ETRADE Pro. You might need to subscribe to Level II Market Data, which may incur a fee, depending on your account status (professional vs. non-professional). Check ETRADE's pricing page for details.
How to manage risk effectively when day trading on E*TRADE?
Effective risk management involves setting strict stop-loss orders for every trade, defining a maximum percentage of your capital you're willing to lose per trade (e.g., 1-2%), and properly sizing your positions based on this risk tolerance. Never deviate from your risk management plan.
How to learn technical analysis for day trading on E*TRADE?
E*TRADE's Knowledge Center offers educational resources on technical analysis. You can also explore their "Advanced Trading" section for articles and videos on indicators and chart patterns. Additionally, many third-party resources and online courses are available for in-depth learning.
How to practice day trading without risking real money on E*TRADE?
ETRADE provides a paper trading (simulated trading) feature, often integrated into Power ETRADE Pro. This allows you to place trades with virtual money using real-time market data, letting you test strategies and familiarize yourself with the platform without financial risk.
How to deal with a Pattern Day Trader margin call on E*TRADE?
If you receive a PDT margin call, you have five business days to deposit funds to bring your account equity back above the $25,000 minimum. During this period, your day trading buying power will be restricted. Failure to meet the call can result in your account being restricted for 90 days.
How to find highly liquid stocks for day trading on E*TRADE?
E*TRADE's scanning tools, such as Live Action, can help you identify stocks with high trading volume and liquidity. You can also use various filters in their stock screener to search for equities with average daily volumes above a certain threshold, which is a good indicator of liquidity.
