Is TD Ameritrade Good for Day Trading? Complete Review

Is TD Ameritrade good for day trading?

I get this question a lot. Especially with the big bump in day trading popularity ever since brokers began dropping commissions. I think that’s one big reason we’re seeing higher market volume than ever.

So people constantly ask me for my thoughts on brokers and which one’s the best for day trading. Here’s what I think: It’s important to do your own research on each broker and find which one suits your trading style.

Each brokerage has pros and cons. In this post, I’ll review of TD Ameritrade day trading so you can start to get an idea of whether it’s right for you…

Does TD Ameritrade Allow Day Trading?

Yep, TD Ameritrade allows day trading. It’s one of the brokers that made the switch to commission-free trading not too long ago.

It’s not really free. It just means they have to make money somewhere else or they’ll go broke.

How do they do that with commission-free trading? Think of it this way: Every time you place a trade, they take a tiny piece before they give you what you ordered. It’s kind of like when you ask a friend to grab a slice of pie for you and they take a bite before they hand it over.

I’m not saying TD Ameritrade is bad for doing that. Almost all brokerages with commission-free models do the same thing. Just know that there’s really no such thing as ‘free’ — especially in the markets.

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There can be limits to how much someone can day trade. I’ll go over those later. First, let’s look at…

Benefits of Using TD Ameritrade for Day Trading

Let’s go over some of the potential benefits to TD Ameritrade day trading. Some of the most enticing are commission-free trading, mobile trading apps, and the thinkorswim platform.

TD Ameritrade switched to commission-free trading in 2019. Since then, it’s picked up a lot of new users who are looking to save a few dollars on every trade. Lots of other brokers also went commission-free around the same time, adding the bump in volume and liquidity to the markets I mentioned before.

From what I hear, TD Ameritrade’s mobile trading seems solid. I personally don’t think it’s smart to rely on mobile trading much. But it can be a way to execute or get out of trades in a pinch.

What a lot of traders like is the thinkorswim platform for TD Ameritrade clients. It includes scanners, heat maps, access to extensive third-party research, and a company profile tool that can help analyze revenue and returns. Thinkorswim is also customizable, so traders can adjust it to fit their trading styles.

I don’t use thinkorswim. Not because I think it’s a bad stock screener. It’s because I use StocksToTrade for the penny stocks I love to trade.

StocksToTrade was designed by traders for traders. It has the best scanner I’ve ever used. It helps me build solid watchlists and its killer charts help me spot trends and predictable patterns. Click here to try it out with a 14-day trial for just $7.

(Quick disclaimer: I proudly helped design and develop StocksToTrade and am an investor in it.)

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The Cons of TD Ameritrade Day Trading

While there seem to be plenty of benefits to TD Ameritrade day trading, there are some downsides as well…

In my opinion, the biggest downside is its short list: It’s basically nonexistent. That means short-biased traders will have a hard time finding shares to short on TD Ameritrade.

It’s not secret I’m not a big fan of short selling for newbies or in a hot market like we’ve been in. So you might ask, “Tim, why do I need a broker with a big shortlist?” Maybe you don’t.

But nobody can predict how the market will be in a few years, months, or even days. What if the market flips fast and becomes a bear market? Then you might wish you had the capabilities to short sell. (Seriously, if you go into shorting, be prepared.)

Another downside to TD Ameritrade day trading is their executions. They’ve made considerable effort to improve their execution speed and flow, but from what I hear, they may not be as solid here as some other contenders…

TD Ameritrade Account Types

TD Ameritrade has a few account types to choose from. The most common for TD Ameritrade day trading are cash accounts and margin accounts.

Margin accounts on TD Ameritrade require a $2,000 account minimum. Cash accounts have no minimum requirement. So if you have less than $2,000, you won’t have the option of setting up a margin account.

Margin accounts also have to comply with the pattern day trader (PDT) rule. That means traders with margin accounts can only execute three day trades in a rolling five-day period.

Cash accounts don’t have to comply with the PDT rule … but if you have a cash account, you have to make sure you’re not freeriding. That’s buying and selling shares without having the funds available to cover your trades. More on that in a bit.

Is Day Trading Free on TD Ameritrade?

Yes, day trading is free on TD Ameritrade.

Like I said, commission-free trading is one reason for insanely high volume and liquidity in the market. Last year we saw millions of new traders come into the stock market.

It’s great for prepared traders. I’m glad there are more people looking to make money in the stock market, but too many don’t do enough research. Remember that, statistically, most traders lose.

Why? Usually, it’s because they don’t have discipline, they don’t prepare, and they think trading’s easy. So too many jump into trades without studying. Then they don’t know my #1 rule to cut losses quickly either. Before they know it, they’re bag holders.

I’m stoked to see so many people in the stock market. But don’t expect to make easy money. It takes hard work for years. You have to make a plan for every single trade and stick to it, no matter what.

TD Ameritrade’s Commissions and Fees

Even commission-free trading has a few fees…

Commission-free trading is limited to stocks and ETFs traded on major stock exchanges like the Nasdaq or the New York Stock Exchange. But for trades on the over-the-counter (OTC) markets, there’s a trading fee.

The fee for OTC trades is a flat rate of $6.95. That means if you buy 100 shares of a stock listed on the OTCBB, you’ll pay $6.95 for that trade. If you decide later that you want to add another 100 shares to your position, you’ll pay another $6.95.

Personally, I don’t mind fees. So to me, $6.95 per trade isn’t bad.

In fact, I think commission-free trading can be dangerous. It can give some traders the idea that they don’t have much to lose, so they don’t make plans. They’re wrong. Going into a trade without a plan is much worse than paying a few dollars to make a well-planned trade.

TD Ameritrade: Platforms and Mobile Apps

TD Ameritrade’s thinkorswim platform is widely respected among traders.

It offers charts, customizable scans, news feeds, and more. It’s a good tool for TD Ameritrade day trading.

Thinkorswim has a mobile app as well. The app has the same tools as the desktop platform and can be good if you want the option of getting quotes on your phone.

TD Ameritrade also has a mobile app that’s designed like its website.

Now let’s go over TD Ameritrade day trading rules and limits…

What Are TD Ameritrade’s Day Trading Rules?

Most U.S. brokerages, including TD Ameritrade, have similar day trading rules. Those rules affect how traders approach every trade.

Traders with a TD Ameritrade cash account need to be aware of the rule against freeriding, which is the sale of securities bought with unsettled funds. If you have a cash account, you need to make sure your funds settle before you make new trades.

Now let’s talk about the pattern day trader rule…

TD Ameritrade Pattern Day Trading

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The PDT rule is easily the most talked-about rule for day traders. Remember it only applies to those with margin accounts…

Again, the rule states that anyone with a margin account and less than $25,000 in their account can only place three day trades within a rolling five-day period. So if you place three trades on Monday morning, you’ll have to wait until the following Monday before trading again.

Newbie traders tend to hate the rule because they can’t trade as much as they want to. This is true with TD Ameritrade day trading or any brokerage.

But I think the PDT rule is a good thing. It teaches beginners to make the most of every trade and set up a solid trading plan.

That’s why I tell students to start with less than they think they should. Trading is hard — especially in the beginning.

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How Many Day Trades Can You Make on TD Ameritrade?

The number of day trades you can make with TD Ameritrade depends on your account type and size.

If you’re under the PDT and trading with a margin account, you’ll have to consider that. And if you have a cash account, you have to wait until your funds settle.

Other than those, there’s no limit on how many day trades you can make on TD Ameritrade.

Conclusion: Is TD Ameritrade Good for Day Trading?

TD Ameritrade is a well-known and well-respected broker. Is it right for you? Only you can answer that.

Some benefits to TD Ameritrade day trading include commission-free trades on listed stocks, mobile apps, and the thinkorswim platform. Thinkorswim can help with scanning, charting, and trading.

But short sellers might want to avoid this broker because of its scant short list. Trading executions are also reportedly slower than some other contenders. That’s something else to consider.

That’s my lowdown on the broker. Now it’s time for you to dig deeper and make sure the broker you choose fits your trading style.

What do you think? Do you use TD Ameritrade for day trading? How does it suit your trading style? Let me know in the comments.