StockFetcher Forums · General Discussion · Pattern Day Trader<< 1 2 >>Post Follow-up
shmoyer
18 posts
msg #39453
Ignore shmoyer
12/10/2005 2:45:49 PM

I need some help in understanding the nuances of the “pattern day trader” status. I’ve got the basics...buy/sell the same security 4 or more times in 5 business days and maintain a minimum equity of 25k. I also understand that the pattern day trader can trade up to 4x the amount above the 25k minimum i.e. maintenance margin excess. Having never traded on margin (never wanting to) the fact that a pattern day trader account is strictly a margin account makes be nervous. If my understanding is correct you would only be able to trade up to the amount of the excess and any amount beyond, up to 4x, would be margined. As an example if you had an account with $150,000 you would have $125,000 available for trade x 4 or $500,000 total...is this correct? I assume that the first $125k would be a cash purchase and the remainder, $375k, would be a margined purchase. My concern is the ramification(s) of the margined amount...are you occurring margin fees if you buy/ sell on the same day and if so what would they be? In other words are you paying interest during the 3 day settlement period. Thanks in advance, Steve


TheRumpledOne
6,358 posts
msg #39455
Ignore TheRumpledOne
12/10/2005 3:08:59 PM

You will have to ask your broker.

Each broker intreprets things differently.

I think the SEC is trying to standardize things.


shmoyer
18 posts
msg #39460
Ignore shmoyer
12/10/2005 5:22:12 PM

Thanks for your prompt response TRO...from my research the SEC has already standardized pattern day trader status via amendments to NASD Rule 2520. Ameritrade, Datek, Iclearing and Scottrade have already received stiff fines for violating Regulation T. From reading virtually every StockFetcher Post, and most especially yours, I have gathered that you are probably a pattern day trader and if so would you be willing to share your experiences as to the pros & cons of being such? It's difficult enough to develop trading strategies that enable one to make a living and now one has to develop equally comprehensive strategies to deal with brokers and the SEC. Steve


TheRumpledOne
6,358 posts
msg #39461
Ignore TheRumpledOne
12/10/2005 8:30:01 PM

LOL... I just trade.. I don't worry about the "rules".

Sometimes, after withdrawing money, followed by a loss, an account of mine may be below the $25k minimum and I get an email, which I ignore.

I just have to trade it back over $25k and no more problems.

TradeStation won't allow you to trade AT ALL if your account drops below $25k AND you are marked as a pattern day trader... found that out the hard way...LOL!

HTH


shmoyer
18 posts
msg #39462
Ignore shmoyer
12/10/2005 8:50:43 PM

Thanks...sounds like the best strategy is to keep quiet


Way2Late
37 posts
msg #39463
Ignore Way2Late
12/10/2005 11:08:48 PM

A couple of things. We use Interactive brokers so this may only apply to them, but I don't think so.

1. No charge for margin if you buy and sell the same day.
2. We get 4X margin for the whole account, if you have 150K you can trade 600K
3. If you hold overnight over 2x margin you have to come up with cash for the margin call, even if you sell the securities the next day you have to come up with whatever the margin call is within a certain time. But if you're a diciplined day trader that won't matter.

Pros of being a daytrader?

1. You can sleep at night knowing if 9-11 happens again you won't be done trading.
2. No limits to your earning potential.

Con's of being a daytrader?

1. You can lose your money faster than you can make it.
2. 90% of the people that start out don't make it.
3. Having to get a real job after you lose too much money.









shmoyer
18 posts
msg #39467
Ignore shmoyer
12/11/2005 12:25:33 PM

1. No charge for margin if you buy and sell the same day.
*****Would this be true of subsequent trades? i.e. buy and sell one stock day in and day out...never holding over night.

2. We get 4X margin for the whole account, if you have 150K you can trade 600K
*****You would still have to maintain a "cushion" of 25k in cash or settled securities...correct?

Thanks for your input it is very helpful. Steve





Way2Late
37 posts
msg #39474
Ignore Way2Late
12/12/2005 12:18:12 AM

1. No charge for margin if you buy and sell the same day.
*****Would this be true of subsequent trades? i.e. buy and sell one stock day in and day out...never holding over night.

Right, as long as you are out of the trade you can trade in and out as many times as you like. I believe you can hold overnight without cost if you're not over your cash balance, although if you're truly a day trader you won't.

2. We get 4X margin for the whole account, if you have 150K you can trade 600K
*****You would still have to maintain a "cushion" of 25k in cash or settled securities...correct?

Not to my knowledge, I believe you get a true 4x your cash balance, otherwise if you only had 30K by your way of thinking you would only get to trade with 35K, which I know isn't true.

But if you don't mind me saying so, if you're asking these questions you should be a long way from maxing out your margin. Start small, learn the mechanics of your system and broker, and only after months of practice should you be risking money on margin.

Most brokers have accounts that have minimum trading fees of $1, start trading 100 shares at a buck a pop to get used to trading, it's actually like paper trading, you're not risking enough to break the bank, but you do have some emotional involvement so you can react more realistically than you would paper trading.

Good luck.


shmoyer
18 posts
msg #39480
Ignore shmoyer
12/12/2005 12:50:48 PM

Way2Late...thanks again for the pertinent information. Yes, I will begin slowly with small amounts. I've been paper trading for months using the "Muddy Method" and that has been working well. I noticed I was getting some pretty good pops on day 1 which led me to consider day trading. I've been swing trading for about 4 years with reasonable success but I must admit I'm attracted to 'day trading' for the reason(s) you mentioned...no over-night exposure and perhaps a greater profit potential. I've never traded with margins, nor wanted to, but with day trades that may be inevitable. I just want to make sure I understand the mechanics of day trading with margins and 'all' the ramifications of being assigned as a "pattern day trader" by my broker before I get my feet wet. Any other advice you care to submit will be gratefully acknowledged. Steve


Way2Late
37 posts
msg #39485
Ignore Way2Late
12/12/2005 9:57:18 PM

To my knowledge there is no downside to being labeled as a pattern day trader if you have enough money in your account (min 25K). You certainly don't have to use the margin, you can just trade with your cash or use the standard 2X margin, you just have the availability of more margin if you don't hold overnight, and you can move in and out of positions at will.

Most people that have problems have it the other direction, if they don't have enough money in their account and they daytrade (sometimes they get stopped out) then they can have problems or have to quit trading for some time so they don't get labeled as a daytrader.

There are some tax advantages to being a trader, but since there is little written on trader status, most of the rulings are the result of court cases. Do a search if you're interested in that aspect, I wouldn't begin to give advice on that.




StockFetcher Forums · General Discussion · Pattern Day Trader<< 1 2 >>Post Follow-up

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