Day Trading Margin Rules from IB

Discussion in 'Trading' started by tc, Aug 15, 2001.

  1. Vinnie


    Regarding the new NASD rule, well at least IB finally posted some information about the new rule, although it is still unclear. I started day trading back in May and like many others in this extremely tough market, i have paid my tuition and taken my losses, yet I am getting better. Unfortunately i do not have the 25k minimum to meet the new requirements and see no way around the new rule. This rule is absolutely ludicrous. What are they thinking? You have 25k you get 4 times margin! and you can trade and short. You have say 20k and you get 1x buying power and cannot short, and cannot have any margin at all. Unbelievable. So what do I have to do, go back to being an "investor" and lose more money, oh, but I get margin then, that's nuts. I day trade, in fact I almost dont need margin, but I need to short, and that will no longer be possible. Now, i can't day trade anymore and do covered calls or even have some swing trades and day trade at the same time. Since I trade intraday, i have cash at the end of every day, completely in control of my money, yet no margin, but i have been crushed before on margin holding positions overnight. The bottom line is I will not be able to continue to trade, i'm out of business, I see no way around this. A lot of traders are going to feel the sting of this new rule and there are many out there who don't even know about it.
    #11     Aug 16, 2001
  2. I'm not sure if one was able to daytrade on a long side with cash only account with IB before. Because if you were this sounds that you will still be able to do so. I'm sure that there are some brokers that allow daytrading in cash only accounts. If that is the case that is a good news 'cause at least you can trade 70% of the time. I'm sure that majority of traders trade on the long side most of the time anyways.
    #12     Aug 16, 2001
  3. elie


    what about the 4 times margin? I didnt see that this was mentioned, in the mail from IB.
    Def could You say something to this point?


    #13     Aug 16, 2001
  4. To the best of my knowledge, cash accounts require a 3 day settlement period... margin accounts can be settled in real-time. So daytrading on the long-side in a cash account is probably not possible. And even if it were, if you had less than $25k the rules say you would only be allowed 3 intraday round trips in any 5 day period.

    Conclusion: SEC has made daytrading a club for people with more than $25k. I started with less than $25k several years ago, and can make a few grand on a good day. If I had started my daytrading around now, I would be knocked out of the game before I have even begun... the SEC is removing the opportunity from many to become independently wealthy ... the rules suck ... they dare not remove the 4:1 margin that they have promised ... that's the only good thing to come out of this.

    If I go to Vegas, the casino owner doesn't ask me if I have $25k ... and that is gambling. Trading is NOT gambling... why can't people be allowed to do with their money as they wish?

    Note that the NYSE stocks have the rule kick in on August 28. Nasdaq stocks have the rule kick in on September 28.

    The way forward for the dispossessed:
    Forget stocks ... trade single contract futures. Equal risk as stocks, and no crappy $25k rule. Etrade etc are now effectively dead meat, and only the direct access firms (with better capitalised traders)and the futures brokers will do well now.

    #14     Aug 16, 2001
  5. Fohat



    To the best of my knowledge, cash accounts allow (do not require) up to 3 day settlement period. There's no rule to force you to settle the trade on the 3rd day only.

    Therefore, realtime or same day settlement is allowed and possible.

    The new daytrading rules are actually modifications of NYSE and Nasdaq <b>MARGIN</b> rules, that is, <b>the rules apply Only to margin accounts and Only for trading NYSE and Nasdaq stocks.</b>

    Since the new margin rules do not apply to cash accounts, there's NO 3 daytrades restriction on a cash account.

    Daytrading in the rules is defined as an activity in a <b>MARGIN</b> account. Therefore, no activity in a cash account is daytrading.

    It follows that buying and selling intraday in a cash account is allowed and is not limited by 3 daytrades.

    Since AMEX does not have min. 25k daytrading margin rule. The brokers that want to survive may allow and offer:
    1) intraday trading in a cash account. and
    2) daytrading stocks on AMEX or AMEX stocks (with no # of daytrades max., because the NYSE&NASDAQ daytrading margin rules apply only on NYSE&NASDAQ and not on AMEX).
    for customers with less than 25k. accounts.


    #15     Aug 16, 2001
  6. def

    def Sponsor

    I haven't heard of anything in regards to IB's comments on the margin. I haven't asked but I will today.
    #16     Aug 16, 2001
  7. Fohat,

    You are right, and I am wrong. Thank you for the clarification and apologies for creating confusion.

    Indeed what you have said means that under $25k'ers should be able to daytrade in a cash account as long as
    1) their brokers settle in real-time
    2) they stick to lower priced stocks, so that they can afford to buy them with their available cash
    #17     Aug 16, 2001
  8. Actually, the new margin rules will apply to trading on the AMEX as well. To be specific, the new margin rules are amendments to Rule 431 of the New York Stock Exchange, Inc. (NYSE) and to Rule 2520 of the National Association of Securities Dealers, Inc. (NASD), and the NASD is the parent company of both the Nasdaq Stock Market, Inc. (Nasdaq) and the American Stock Exchange (AMEX).

    Regarding intraday trading in a cash account, an issue to consider is how firms will calculate buying power for cash accounts. In light of the new rules, it isn't entirely clear whether the exceeding of buying power for cash accounts may be tested based on the highest single purchase method (which would theoretically allow for the unlimited turning over of a cash account in a single day if buying power is updated real time after every round trip) or whether the test must be based on the total value of all purchases during the day (in which case every intraday purchase would count against a set buying power amount for the day that could not be exceeded).

    In any case, the new margin rules obviously pose additional compliance burdens on firms and it will be interesting to see the various approaches to their implementation. IB's solution seems to be an attempt to avoid the new margin rules altogether by "saving" their under-$25,000 margin customers from the plight of becoming pattern day traders through freezing their accounts. Whatever its overall merit, it's a solution that has simplicity on its side.
    #18     Aug 16, 2001
  9. Daytrading rule & Amex

    just chatted with IB Rep from helpdesk, asking whether one could still daytrade AMEX stocks with a margin account < 25K, after new rules will have been imposed for NYSE & NASDAQ stocks.

    The answer was "yes".
    This would mean, one could sill daytrade the Q's, ETF's, and all other AMEX listed stocks as much as he wants.

    Think this has still to be verified. Any opinions ?
    #19     Aug 16, 2001
  10. dlincke


    Every trade is subject to T+3 settlement irrespective of what type of account is involved. If unlimited daytrading is possible in a cash account only hinges on the broker's ability to conduct "time and tick" accounting so that freeriding can be precluded.

    #20     Aug 16, 2001