fast, Cyber apparently only monitors margin accounts to see whether the term "pattern day trader" applies to account holders. (...require T+3 settlement in cash accounts.) I'm having trouble getting the same answer twice from Cyber. My current understanding of their policy is that cash accounts, whether above/below $25K, can daytrade until they "use up" their cash. For instance, you start the day with $30K, buy/sell 500sh of a $25 stock, you've "used up" $12,500 leaving you $17,500 to trade with. You then buy/sell 1000sh of a $17 stock using up $17K, leaving you with $500 to trade with, no more. The next day you start fresh with $30K (adjusted for your gains or losses the previous day). I'm told the T+3 Settlement rule applies to you withdrawing funds from your cash account, not daytrading within the account. So if I follow Cyber's thinking for cash accounts, you have no margin, you can't short, you can daytrade until you "use up" the funds that day (that is, you can only use funds once), you start fresh the next day, you can only withdraw funds after waiting 3 days for settlement. If anyone is sure of something different, please post what you know for certain.
Zarrar this is what i got back from them(Datek) Q)hi...Cash accounts with datek,...can i daytrade more than 3 times a week and not be catagorised as a PDT?? If so is are the accounts real time update or t+3...... A)No, anyone who daytrades four or more times in any five day period will automatically be labeled as a daytrader regardless of the account type. All accounts update in real time.
Zarrar, Datek gives 4:1 daytrading margin to those with less than 25k margin accounts. Overnight margin remains 2:1. Magna wrote: the T+3 Settlement rule applies to you withdrawing funds from your cash account, not daytrading within the account....for cash accounts, you have no margin, you can't short...you can only use funds once Re: Cash accounts Correct, but keep in mind that with T+3, all transactions you make today are settled usually 3 days later. No funds are deposited or withdrawn today from your cash account for todays transactions, because all trades are settled 3 days later. Yes, all transactions are reflected not today, but 3 days later! Therefore, if I buy shares today, no funds for this purchase will be withdrawn today, but 3 days later at settlement T+3! Thus, the imaginary fear that the broker will have to extend credit for any transaction today is baseless. For todays transactions, no money is needed today, the payment is done 3 DAYS LATER, at settlement! Assume I've made 100 daytrades today. Proceeds, payments for them are required 3 days later, at settlement. Now, lets move 3 days ahead, to see what happens at settlement, when all daytrades are settled chronologically: First, daytrade1 is settled: a) The cash to purchase the daytrade1 shares is withdrawn from my account. b) the cash proceeds from selling the daytrade1 shares is depoisted in the account. Daytrade1 is settled. Second. a) The cash proceeds from daytrade1 are used as a source to pay for the purchase of daytrade1 shares. Note, i DO NOT use the original cash to pay for daytrade2, I'm using the proceeds from daytrade1 to pay for daytrade2. I'm not using the initial cash twice (I'm not free-riding), I'm using different funds for purchase - the proceeds from daytrade1. I'm using the initial cash once. b) The proceeds from selling daytrade2 shares are credited to my account. Daytrade2 is settled. Third, a) From the cash proceeds of daytrade2 I purchase the shares of daytrade3 and so on... All transactions above are permissible by NYSE rules and Regulation T (all purchases don't exceed the cash account buying power = cash + proceeds from the previous daytrade). That's how daytrading in a cash account is done according to the rules. Regulation T allows daytrading in a cash account. NYSE rules allow daytrading in a cash account. T+3 allows daytrading in a cash account. Thus, daytrading in a cash account is by the rules and transactions are settled T+3. The cash account is updated in realtime and transactions are settled T+3. Fohat
Magna, I was told by one of the Cyber reps in a phone conversation that they will apply T+3 settlement to cash accounts. I think two problems we all face now are (1) we cannot count of getting the same answer twice from some brokers, as you said, and (2) different brokers have different interpretations of the SEC rules. Right now, about the only people I personally would count on "for sure" to explain a particular broker's policies are probably that broker's lawyers. At this time I especially doubt that phone reps have been sufficiently trained in these complex policies and I am finding some brokers' written policies to be incomplete and/or difficult to understand. And even if I talked with a broker's lawyers, I wouldn't necessarily count on that broker's policies being in line with SEC requirements. I think it will be a while before all of these policies get ironed out. I think it is a MUST for us to share our understanding of each broker's policies. Can keep us from making costly mistakes, which is a real potential in this situation. You probably have these, but just in case you don't, here are the links to Cyber's pages. Not sure they address your issues about cash accounts. Day Trade Margin Requirement http://www.cybertrader.com/faq/marginfaq.asp Margin (Non-day trading) http://www.cybertrader.com/faq/margin.asp#15 I am interested in finding a broker who allows realtime updating in cash accounts. That's one of the reasons I have talked with reps for so many brokers and read their policies.
I find Fohat's answer interesting because I have been wondering where the funds are during the period of time between my buying and selling a stock and the settlement date. It's part of my seriously considering the question "What are the risks/costs to the broker when providing realtime updating for a cash account?" If my broker bars me from withdrawing funds until after settlement, the only risk I can see (assuming I lose everything and go to zero dollars) is the loss of my trading fees and maybe the loss of overhead costs associated with my support. Is this right? Fohat has presented an argument that we are not "free riding" when a broker provides realtime updating for a cash account. But some (many?) people seem to think it is free riding. Are brokers and/or someone else losing interest money when providing realtime updating? If not, why does the FRB, SEC, NYSE, NASD or whoever object to realtime updating for cash accounts? (I am hoping for an answer that helps me understand beyond "It is considered free riding and free riding is prohibited.") I have thought of one possible explanation that has to do with the muddle that would be caused if a given stock was tranacted several times over a three day period and then not actually delivered for the first settlement, creating a chain of tranactions that could not be settled. Is this a problem in this day and age when "certificates" are not only held by brokers, but are probably electronic? Any info will be appreciated.
Zarrar what you got told does'nt seem to be correct i've emailed Datek 3 times and it goes in two stages ok..outlined below Part 1...... If you are tagged as a pattern Day Trader and your account is below $25,000.00 your account will immediately become Restricted. If your account is Restricted to cash transactions only, you would no longer be able to make a purchase, or short sell, on margin. Part 2 My question to datek "So say i'm now a recognised PDT and under Restriction ok......i have $10,000 cash in my account can i trade long as often as i wish and is that account going to be updated in real time or t+3. Answer If your account is Restricted to cash only you will be able to Day trade using the cash in your account. While you will be able to make the trades real time please monitor your account to abide to Regulation T. Regulation T of the Federal Reserve Board allows customers to purchase securities, if they do not have enough funds in their account, if the security is not marginable, if your account is not margin-enabled, and then pay for those securities within 3 business days. No NASD member firm shall permit a customer (other than a broker/dealer or a "designated account") to make a practice, directly or indirectly, of effecting transactions in a cash account where the cost of securities purchased is met by the sale of the same securities. The provisions of Section 220.8(c) of Regulation T of the Board of Governors of the Federal Reserve System dictate the prohibitions and exceptions against customers' free-riding. If you do place a buy order and the order is executed and exceeds your buying power, you either have to deposit the required funds or sell securities equal in value to cover the negative amount in your account within three (3) business days to cover that purchase. If you sell the securities, you "must still deposit" the funds within three business days. If this procedure is not followed, the transaction is a violation of the free riding rule and Datek reserves the right to freeze your account for up to 90 days. Careful guys you mess up on t+3 they can freeze you for 90 days
To all, This issue regarding daytrading in a cash account does seem to be confusing based on the countless threads & posts debating it. I believe that tuna's response from Datek is correct. Six months ago or so I was daytrading my CSFB Direct (then DLJ) cash account along with my margined direct access account and ran into this exact problem. I was able to daytrade the account but was then hit with a call for the funds that exceeded my cash balance and my account was placed on a 90-day restriction as well. When I called, they said I was freeriding. So I would be careful about doing this. You can always experiment with whatever different types of accounts you have but make sure you have the funds available to meet the call & don't forget about the possible restriction. When I spoke to them, I debated this exact issue of realtime updating (since my account did, and allowed me to make the trades), but in the end there is really nothing you can do except meet the call & wait out the restriction.
tuna, A cash account can be updated in realtime while all transaction are settled T+3. As I have shown in my previous post. tuna wrote: If you sell the securities, you "must still deposit" the funds within three business days. Dead wrong. If you sell securities you do not have to deposit any funds. Quite the opposite ! The broker must deposit the proceeds from the sale in your account by 3 days. There's no margin for cash accounts. Only margin accounts can short. fast wrote: I have been wondering where the funds are during the period of time between my buying and selling a stock and the settlement date The funds are kept by your broker or his clearing house. Basically the broker is free-riding your funds for 3 days!!! Why do you think they don't want to switch to realtime settlement?! I strat with cash. I pay for my first purchase with cash. I pay for the second daytrade purchase, from the proceeds of the previous daytrade, not with the initial cash. For each subsequent daytrade I pay from the proceeds of the previous daytrade, not the initial cash I've started the day with. This is not free-riding. Free-riding is if $1k cash account purchases $10k worth of CSCO shares and doesn't deposit $9k in cash by 3 days to pay for the purchase, but instead, sells the $10k worth of CSCO shares before paying for them. This is called free riding and should be prohibited. Your account could be freezed for up to 90 days. There's no free-riding in any daytrading transaction in my previous post , because the cost of securities purchased is not met by the sale of the same securities, it is met either by cash or by the proceeds of the previous daytrade. And all purchases do not exceed the buying power($cash+$proceeds of previous daytrade). Therefore, Daytrading in a cash account is not free riding. T+3 settlement allows realtime account update. To sum up, daytrading in a cash account with realtime update, as described above, is allowed and does not violate any rules. Fohat
Fohat, Thanks a million for your answer. You are willing to get into the technical details, which I am interested in. Here is something I don't understand. First, you stated: Correct, but keep in mind that with T+3, all transactions you make today are settled usually 3 days later. No funds are deposited or withdrawn today from your cash account for todays transactions, because all trades are settled 3 days later. Then you stated: The funds are kept by your broker or his clearing house. Basically the broker is free-riding your funds for 3 days!!! Why do you think they don't want to switch to realtime settlement?! My question: Those two statements seem contradictory. Are the funds in my account (or that of the person on the opposite side of the trade) or are they being held by my broker or his clearing house?
Ok Fohat i agree with your application on reg t and up till now thats how my brokers applied it too..... i've got a feeling that the brokerage firms have been pushed to take a step the other way. Mytrack...cash account...(no margin ever).this up until now updated realtime so profit/losses are effected in the current balance.It would'nt let you buy $3000 worth of shares when you only had $2000 in your accnt. SO reg t call was basicly impossible. if you daytraded your $2000 turned $500 profit as soon as you sold your new accnt balance and buying power would be $2500. NOW (and i have'nt got to the bottom of it yet) i think their about to NOT UPDATE your buying power whether thats profit or loss... we start the day with $2000 i think what their about to do is that $2000 is going to be there and available till it gets pulled 3 days later... i daytrade $2000... loose $ 500 on that trade so my real balance should be (and up till now would be)$1500 ...BUT with what their going back to i can still do another trade to the value of $2000 Can you see the problems coming. Your examples earlier in other posts have shown how example 1 can work within the rules but i got an idea there wings have just been clipped on that one in regard to it probably being operated as giving out margin or credit before funds are cleared in theory 3 days later. They've got the system setup to handle it fine as they've got it. But looks like someone wants us back in the stone ages maybe we should all go back to waterhouse's accounting nightmare because if my understanding of this is correct thats what their effectively about to do. ......................................................................................................... PS Fohat "tuna wrote: If you sell the securities, you "must still deposit" the funds within three business days. Fohat wrote Dead wrong. If you sell securities you do not have to deposit any funds. Quite the opposite ! The broker must deposit the proceeds from the sale in your account by 3 days. Fohat that was a quote out of an email from Datek