How to Day Trade on Fidelity

Fri Sep 10, 2021, 01:32 pm | by Dan Schmidt | No comments

Fidelity Investments is one of the most reputable and renowned brokers on the market with a wide range of trading and wealth management services. Fidelity was one of the first brokers to embrace the internet over 25 years ago and their mobile app and online platform make it easy to invest regardless of your goals or background. 

Fidelity was home to investment maven Peter Lynch whose Magellan Fund compiled one of the best track records in the history of the industry. Always an innovator, Fidelity today has a full suite of trading tools for both buy-and-hold investors like Lynch and day traders who utilize technical analysis and speed to make profits.

Interested in a side gig as a day trader? Fidelity is a good place to start thanks to their account options, research tools, education center, and trading platforms. But you’ll need to understand the risks and rewards of day trading if you want to have success – even the best platforms and brokers can’t save you from making mental mistakes.

Brief Overview of Day Trading

Day trading is an investment technique where securities are bought and sold during the same trading session. All positions are liquidated before the end of the day and nothing is held overnight. In fact, for day traders the holding period could be as short as a few minutes.

Since the majority of big stock moves occur overnight or after hours, day traders aren’t beholden to fundamental events like earnings reports, economic data, or successful product launches. Sure, sometimes catalysts can boost a day trader’s profits, but most of the time is spent using technical indicators like support and resistance to identify quick, profitable trades. Losing trades are closed up immediately and winning trades are exited once the profit goal is reached. Day traders must be mechanical in their approach – this type of trading has no room for emotion or greed. 

Day traders need to be cognizant of certain restrictions like Pattern Day Trader rules. PDT rules state that only three day trades can be completed in a margin account during a five-day span unless $25,000 in capital is maintained at all times. Cash accounts without access to borrowed money aren’t targeted by this rule, but day traders using margin must be aware of their trade history and current capital levels.

How to Day Trade on Fidelity 

To day trade on Fidelity, you’ll need to first sign-up and fund an account. Fidelity has more than a dozen different account types to choose from, including retirement accounts like traditional and Roth IRAs, educational accounts like 529 plans, and standard brokerage accounts. You’ll want the standard brokerage account for day trading purposes. Choose either a margin account if you want to use leverage or a cash account if you want to use your own capital and avoid the PDT rules.

Picking an account type isn’t the only choice you’ll need to make. Fidelity also has different trading platforms, including the powerful ActiveTraderPro system. The online trading platform can be accessed from a web browser and the mobile app can be downloaded for iOS and Android smartphones. But for day traders, you’ll want the tools provided by the ActiveTraderPro platform.

ActiveTraderPro 

Comparable to thinkorswim from TD Ameritrade or Power E*TRADE, the ActiveTraderPro platform provides analysis and technical tools that day traders should not operate without. Users of the platform will have access to the Daily Dashboard, a trading hub where updates on positions and real-time news can be disseminated.

Five different layouts can be selected, each geared toward a different type of trader. Day traders will likely want the Market Monitor or Technical Trends layouts which incorporate both technical data and fundamental information into the display.

Charts can be accessed from a tab at the top menu and the Trade Armor feature allows users to check support and resistance levels across multiple timeframes to identify the best entry points for trades. Complex trades using limit orders, trailing stops, and multi-leg options chains can also be initiated with minimal effort.

What to Consider

 Margin Fees 

Trading on margin can enhance your profits, but no one offers a loan for free. Margin is still borrowed money and like any financial institution, Fidelity will want to be compensated for lending. The lowest rate offered by Fidelity is 4%, but that’s for amounts over $1 million. For amounts under $50,000, the lowest margin rate is 7.8%.

This is lower than E*TRADE (8.45%), identical to Charles Schwab, and higher than Interactive Brokers (2.58%!). The decision to use margin is a personal one – you’ll need to weigh the pros and cons and make your own judgement.

Trading Fees

Like most online brokers, Fidelity has gone completely commission free on all stock and ETF trades made through their platform. Additionally, many of the firm’s sponsored mutual funds and ETFs have had their expense ratios dropped nearly to zero.

But day traders aren’t only interested in stocks and ETFs. Options trades will cost 65 cents per contract and international trades carry unique foreign surcharges. No commission doesn’t always mean completely free – check the costs of your trade before executing it.

Trading Hours

Liquidity is most prevalent during the open hours portion of trading and day traders often require significant liquidity to keep spreads low. But volatility is most rampant during the pre-market (4:00am to 9:30am) and post-market (4:00pm to 8:00pm) sessions. Fidelity clients will be able to access pre and post-market trading through the ActiveTraderPro platform, but be cautious. Liquidity issues mean partial fills are common and only limit orders can be entered outside of normal market hours.

Available Securities

Fidelity has no shortage of affordable ETFs and mutual funds, along with thousands of stocks ranging from microcaps to the Amazon’s (NSDQ: AMZN) and Google’s (NSDQ: GOOG) of the world.

However, derivatives trading comes up a little short. You won’t be able to trade futures, commodities, currencies, or cryptocurrencies on the platform. If you want to spread your trading operation across multiple asset classes, Fidelity might have more cons than pros on your checklist.

Order Execution 

Speed and precision are crucial for any day traders. Not only do you need fast order execution, but the ability to enter multiple trades with various order types. Fidelity allows users to enter up to 50 different orders at once, which can be triggered using a variety of criteria. You don’t have to worry about a fat finger mistake when all you trade ideas can be pre-executed.

Final Thoughts 

Day trading isn’t for everyone and most newcomers will lose money off the bat. Practicing with paper trading software to start is advised, especially if you aren’t well-read on the philosophy of technical analysis. And even then, fake cash is no substitute for the real thing – you’ll need to temper your emotions when real capital is at stake.

Fidelity is a great launching pad for day traders thanks to their ActiveTraderPro platform, low margin fees, and easy learning curve. You can completely customize the platform to bring your favorite tools and indicators to the forefront while monitoring news, social sentiment, and regulatory actions. Fidelity might be most known for long-term investing, but they make a fine day trading brokerage as well.