25 k rule

Discussion in 'Trading' started by Zarrar, Sep 28, 2001.

  1. sallyboy

    sallyboy Guest

    Ok, one last post.


    This crossing of posts can be a problem. There are brokers that allow this all the time. That is one reason for the T+3. As an example, suppose a person owns 300 shares of UTX and actually has the stock certificates. If they sell the 300 shares of UTX, the broker will execute the trade for the client but expect that the stock certificates be deposited into the account in T+3. This also applies to cash & even margined accounts. In fact, that's what a daytrading call is. If you exceed buying power, you are required to deposit funds in T+3 to cover.


    I think I do understand T+3 well enough for the purposes of this discussion.
    #51     Oct 1, 2001
  2. Yoda


    Interacitive Brokers www.interactivebrokers.com

    This is what I found on their website under Daytrading
    Cash Accounts Q & A: .... Therefore, because stock
    transactions settle in three (3) business days....

    Actual rule, taken from SEC website
    http://www.sec.gov/answers/tplus3.htm states: Since
    June 1995, investors must complete or "settle" their
    security transactions within three business days.

    There is a world of difference between "in three days"
    and "within three days"

    #52     Oct 1, 2001
  3. sallyboy

    sallyboy Guest

    Ok, last post.

    From www.interactivebrokers.com:

    Can I day trade in a US stock cash account with IB?
    Cash accounts will not be able to use sales proceeds for new purchases until
    the third business day following the sale.
    #53     Oct 1, 2001
  4. Fohat, sallyboy has explained the application of regulation T with absolute clarity to you at least twice yet you keep insistng he is wrong. All I can conclude is that there are none so blind as those that do not want to see.

    OK, let's assume you are the only person with the intellect to understand how the regulation should be interpreted. Still can't trade the way you want to, can you? No amount of insisting you are right is going to change that.

    Get on with your life.
    #54     Oct 1, 2001
  5. Duffer,

    Why get nasty about it? If you are not interested don't open the thread.

    Have you taken the time to consider the basis of foghats argument or do you just accept it ad Verecundiam that because brokers have said it it is true? Possibly through discussion people can see the other point of view.

    Your own quotation is a good argument why people should think for themselves.

    "The crowd has never thirsted for the truth"
    #55     Oct 1, 2001
  6. Fohat


    dufferdon, Look at my previous posts - always trying to help, clarify and explain. Why get nasty about it? Get on with your life.

    sallyboys arguments are messed up, completely confused and incorrect. I'll back up my statements by analysing sallyboys "absolute clarity" explanation 10-01-01 12:51 AM as you, dufferdon, refer to it:

    sallyboy wrote:''Suppose I begin with a cash balance of $10,000 in my cash account and proceed to purchase $10,000 worth of CSCO. I have to pay for that purchase in T+3, which is no problem since I had that much in my account. "
    Introduction. ok.

    sallyboy wrote: "After the purchase I then have $0 dollars cash available."

    That's incorrect the cash is still $10k

    sallyboy wrote: "I then sell that $10,000 worth of CSCO in the same day. At that point I still have $0 cash in my account, because I do not get the $10,000 cash deposited back into my account until 3 days after I sold the stock "

    Incorrect again, the cash is still $10k

    sallyboy wrote: "If I purchase $10,000 worth of IBM I must pay for that stock with funds other than those that will be deposited into my account from the sale of CSCO stock"

    Incorrect, the payment may be done with the proceeds from CSCO sale. Moreover, at some point in the future payment for stock purchase must be done with the funds from the CSCO sale.

    sallyboy wrote: "The practice of using the cash from the sale of CSCO to pay for the purchase IBM (in this example) is strictly prohibited in a cash account."
    Wrong again, it is allowed.

    sallyboy wrote: "So in other words the use of the proceeds from the sale of the CSCO stock is not available until 3 days later, so using it in the same day to buy the IBM stock is not possible "

    Confused and incorrect statement again. Using it to buy IBM stock the same day is possible and allowed.

    sallyboy wrote: "The only way to do these two intraday trades is to have a margin account in which the broker extends credit to you and allows you to buy the IBM stock while it waits to get paid for the sale of the CSCO stock "

    Confused and wrong statement again. Margin account is not the only way. One can buy IBM stock(in this case) in a cash account also, as my arguments and Federal Reserve shows http://www.federalreserve.gov/boarddocs/legalint/MarginRequirements/1999/19990218/ .

    sallyboy wrote: "If not a cash account I have to pay for the IBM stock with outside funds."

    Completely confused statement.

    sallyboy wrote: "This is why a margin account is essentially a credit account and is treated as such when applying for and opening the account."

    Completely unrelated statement. "Applying for and opening the account"?

    sallyboy wrote: "For my part of this thread, I will probably put it to rest since I'm not sure if I can explain what I mean any better and don't think further posts will help."

    Indeed. He should've done that imo.

    To sum up, sallyboys explanation is wrong, confused, and completely messed up.

    dufferdon wrote: "Still can't trade the way you want to, can you?"
    No, I can still trade the way I want to with Datek stock account, IB stock account >25k and IB futures account.

    Why some of you guys attack me for helping those with less than 25k cash accounts ? They want to daytrade. Brokers want to keep daytraders with cash accounts which generate commissions. I absolutely clearly proved that this is allowed by the law. (It's up to the brokerages to provide it or not).
    When hundreds of ppl demand from their brokers to provide it , after realizing it's permitted by the law, the brokers will probably do it.

    If some broker or brokers don't provide 4:1 daytrading margin, this doesn't mean that 4:1 daytrading margin is prohibited everywhere. If customers demand it, the broker will provide 4:1 (it already happened with IB)

    If some broker or brokers don't allow daytrading in cash account, this doesn't mean daytrading in a cash account is prohibited everywhere. Moreover, this will not change the proven fact that daytrading in cash account is allowed by the rules. (by Reg.T which governs daytrading in cash accounts).

    If enough customers demand it, the brokers will provide it. Some brokers already do.

    #56     Oct 1, 2001
  7. Yoda


    Thanks Fohat, your explanations have been really valuable, and as I understand, you are not restricted by limited capital yourself. I hope brokers will see this issue in the same light, eventually or at least PROVE otherwise.

    #57     Oct 1, 2001
  8. tuna


    yeah x 2 thanks fohat.....Don't seem like any of them are about to play by those rules..Comfirmed mytrack ain't..but thanks for your input on getting the head around it. Appreciated...
    #58     Oct 1, 2001
  9. sallyboy

    sallyboy Guest


    Try not to get nasty yourself, I'm not attacking you. I think at this point I'm going to just say that I will agree to disagree since this whole thread is not of much significance anyway. Maybe things will change & maybe they won't. While I understand the essence of your argument (remember that I said I used it when speaking to my DLJ Direct service rep?), but after looking into it and thinking about it, it makes sense. If you can get past the SEC's answers on this subject (at www.sec.gov/answers/freeze.htm & www.sec.gov/answers/freeride.htm), I would tip my hat to you.

    #59     Oct 1, 2001
  10. OK Fohat, read the extract below from Reg. T

    Sec. 220.8 Cash account.

    (a) Permissible transactions. In a cash account, a creditor, may:
    (1) Buy for or sell to any customer any security or other asset if:
    (i) There are sufficient funds in the account; or
    (ii) The creditor accepts in good faith the customer's agreement
    that the customer will promptly make full cash payment for the security or asset before selling it and does not contemplate selling it prior to making such payment;

    This states quite clearly that you are responsible for depositing funds promptly to cover the value of any purchases that exceed the amount of cash you have in your cash account and that you may not intend to cover the cost of these purchases by subsequent sale of the security.

    If you have a $10,000 account and you buy and sell $10,000 worth of stock ten times during a day by daytrading you are now responsible for promptly depositing $90,000 dollars of cash to cover the purchases, irrespective of the fact that you have sold the stock because the proceeds from the first and subsequent sales are not available for subsequent purchases until T+3. If you don't, you are free-riding and that is not allowed.

    This is what sal has been trying to tell you. If you are conciously daytrading in a cash account you obviously intend to cover the cost of any purchases above and beyond the initial value of your account from subsequent sales and you have no intention of putting up the additional cash to cover your excess purchases. That is contrary to the regulation and that's why you are not allowed to do it.
    #60     Oct 1, 2001