Usage — Brokers, Orders, Market Mechanics¶
Brokerage accounts¶
A brokerage account is what holds your cash and securities and routes your orders to exchanges. US-resident options:
| Broker | Strengths | Weaknesses |
|---|---|---|
| Interactive Brokers (IBKR) | Lowest fees, best routing, global markets, professional API | Steeper learning curve |
| Fidelity | Strong defaults, no commissions, good research, real fractional shares | UI is dated |
| Charles Schwab | Same level as Fidelity; ThinkOrSwim platform | Brokerage merger churn |
| Robinhood | Friction-free UI | Order routing economics work against you (PFOF), questionable in stress events |
| E*TRADE | Solid mainstream | Owned by Morgan Stanley, average overall |
For serious work: Fidelity, Schwab, or IBKR. Robinhood is fine for tiny accounts learning UI but you give up execution quality via Payment for Order Flow (PFOF), and they have a documented history of UI-led behavior (gamification, restricted trading during volatility events).
Account types¶
- Cash account — you trade with settled cash. No leverage. Settlement is T+1 (one business day) on US equities since May 2024.
- Margin account — broker lends you money against your equity (collateral). Up to 2× day-trade buying power; 4× for Pattern Day Traders.
- Pattern Day Trader (PDT) — if you make 4+ day-trades in 5 business days in a margin account and day trades exceed 6% of total trades, you're flagged as a PDT. PDTs need ≥ $25,000 minimum equity. Below that, your account is restricted.
- Retirement accounts (IRA, Roth IRA, 401k) — long-term tax-advantaged. Limited or no margin. Day trading inside an IRA is technically allowed but cash-only and the tax shelter actively discourages frequent trading.
Order types¶
The most common:
| Order type | Behavior | When to use |
|---|---|---|
| Market | Execute immediately at best available price | Liquid stocks, small size, you don't care about the spread |
| Limit | Execute only at your price or better | Default for most retail. Always know your fill price |
| Stop (stop-loss) | Becomes a market order when price hits your stop | Defining max loss |
| Stop-limit | Becomes a limit order when stop is hit | Avoids slippage but can fail to fill in fast moves |
| Trailing stop | Stop that moves with price (locks in gains) | Riding winners |
| GTC (good til canceled) | Stays open until filled or canceled (broker-dependent expiry, often 60–90 days) | Most non-day-trade orders |
| Day | Cancels at end of session | Default for day-trading |
| OCO (one-cancels-other) | Two orders linked; filling one cancels the other | Bracket: take-profit + stop-loss simultaneously |
| MOC / MOO | Market-on-close / Market-on-open — executes at the closing/opening auction | Index rebalances, end-of-day positioning |
Default to limit orders. Market orders on illiquid stocks or off-hours can fill at terrible prices. The few cents you "save" by using a limit are real money over hundreds of trades.
Market structure¶
- Regular hours: 9:30 AM – 4:00 PM ET, Mon–Fri.
- Pre-market: typically 4:00 AM – 9:30 AM ET. Lower liquidity, wider spreads, news-driven moves.
- After-hours: 4:00 PM – 8:00 PM ET. Same caveats. Earnings reports often hit immediately after the close.
- Closing auction: enormous volume; most institutional flow passes through here. The MOC mechanic.
Bid, ask, spread¶
Every quote is two numbers: - Bid — highest price someone will buy at right now. - Ask (offer) — lowest price someone will sell at right now. - Spread = ask − bid. Tight spreads (1 cent on AAPL) = liquid. Wide spreads (10+ cents) = illiquid; cost of round-tripping is the spread + commissions + slippage.
If you market-buy and market-sell the same instant, you lose the spread. This is your minimum cost per round-trip.
Order books and Level 2¶
- Level 1 — best bid and ask (one price each side).
- Level 2 — depth: how much size sits at each price level.
- For day-trading, Level 2 is informative but easily manipulated by spoofing. Don't over-rely on it.
- For long-term investing, you don't need Level 2 at all.
Position sizing fundamentals¶
A position has three numbers worth knowing: - Entry price — where you got in. - Stop price — where the trade is "wrong" and you exit. - Target price — where you take profit.
The risk of a trade is (entry - stop) × shares. If you risk $200 on every trade, the share count is determined: shares = $200 / (entry - stop). This is how professionals size positions — by risk, not by share count or dollar amount.
The 1% rule: never risk more than 1% of total account equity on a single trade. With a $50k account that's $500 risk per trade. After ~100 trades a 50%-win-rate, 2:1 reward-risk strategy yields a small positive expectation; one or two big losses don't blow up the account.
Market data and tools¶
- Free real-time quotes: most brokers include them. Some (IBKR) charge for non-US exchanges and Level 2.
- Charts: TradingView is the de-facto standard charting platform. Free tier covers most use cases.
- Screeners: Finviz (free, fundamentals + technicals), TradingView (technical), Stock Rover (paid, deep fundamentals).
- News: Bloomberg, Reuters, WSJ — but for trading you need it fast. Benzinga Pro is the retail standard.
Common gotchas¶
- Settlement and "free riding": you can't sell a position bought with unsettled funds in a cash account before those funds settle. Margin accounts avoid this; cash accounts limit how often you can rotate.
- Wash sale rule: selling at a loss and buying "substantially identical" within 30 days disallows the loss for tax purposes. Devastating for active traders in taxable accounts.
- PDT designation is sticky once flagged. Brokers can require an explicit account type change to lift it.
- Halts: trading halts on news (Limit Up–Limit Down halts on rapid moves; T1/T12 halts for news). Stops do not protect you across a halt.
- Slippage on stops: stops are not insurance. In a gap-down open, your stop fires at the open price, possibly far below your stop level.
- Dividends and ex-div dates: if you're short on the ex-div date you owe the dividend; if you're long after the close on the day before ex-div you receive it.
- Earnings announcements: scheduled. You can look up the date. Holding through earnings is a binary event; treat it as gambling unless you have an edge in interpreting earnings.