Day Trading Margin Rules from IB

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

  1. roger2


    This is a positive line of thought, there probably is no reason that IB or other brokers could not update cash accounts in real time just as some do with margin accounts.

    But even if this change were to be implemented, is shorting allowed in cash accounts?
    #21     Aug 16, 2001
  2. roger2

    Shorting is not allowed for cash accounts.
    #22     Aug 16, 2001
  3. coops


    IB updates your account page as you go, so no reason not to be up to date with your cash balance - I expect IB already have safeguards against customers trying to overstep their account cash balance anyway.....

    so if the rules apply to margin accounts - does this truly mean cash accounts are exempt from the day trading pattern crap? (yes, you won't be able to short 'til you get over 25k and into margin account again, but , hey, at least you can daytrade long and papertrade short til then...)

    therefore - do/should/can IB have an easy method of changing account status from margin enabled to cash only?

    seems the best and reasonable answer - originally when i heard about the 25k thing, i understood it to be limiting shorting activity to those with >25k, not a general thing.


    #23     Aug 16, 2001
  4. huby


    HELP DEF!!

    The big questions on this thread that need double verification are these:

    1) Will IB update balances in cash accounts in real time thus allowing unlimited intraday trading on the long side?

    2) Can we really still daytrade AMEX stocks using margin and shorts?

    3) Will those under $25k need to convert their accounts to cash accounts once they are "frozen" or will it be automatic. IB says you will not be able to trade period, until $25k is reached.

    4) "ktm" mentioned a 5 day turn around. Is it true that after waiting 5 days you can start trading again in your margin account?
    #24     Aug 16, 2001
  5. huby


    I emailed the questions from my previous post to IB cust. service and got this reply:

    Dear Trader,

    All US Brokers have to comply with this new
    Rule on September 28th. IB is going to comply
    fully with this Rule on August 28th. Therefore,
    if you want to day trade without limitations, then
    you are going to have to meet the $25k minimum
    by August 28th.

    If your account is under the $25k, then
    you are only limited to 3 roundtrips within
    a 5 business day period. You will not lose
    Margin Trading abilities when it comes to Buying
    Power. You are just limited to the amount of
    trades that you can do. If you do over 3 roundtrips
    within 5 business days, then your account will
    be frozen from opening any new positions for 5
    business days.

    Since you cannot day trade in a Cash account,
    this option is not available to you as a day trading
    vehicle. Cash trades settle in T+3, therefore,
    that money is not available until Settlement Date.

    The AMEX is a sister Exchange of the NYSE,
    the QQQs are still subject to the rule. Therefore, on
    August 28th, all AMEX and the NYSE stocks will begin
    trading with these new Rules in place. I would double
    check with the SEC and the NASD websites to make
    sure what you are hearing is correct.

    If you trade Stock or Index Options, Futures, or
    Options on Futures, the New Rule doesn't
    effect these vehicles for Day Trading.

    IB Customer Service
    #25     Aug 16, 2001
  6. huby


    Well, there you have it folks. We'll have to wait to hear from DEF for double verification on the email I just received from IB. If it's true, all traders under $25k are basically SCREWED!!

    The way I see it, here are the only options.

    1) Trade three VERY selected and well thought out trades in each one week period. (3 round trips max). Then you must wait 5 days for your next batch of 3 trades.

    2) Trade futures or options.

    3) Trade with a prop firm such as Echo or Worldco. (Must have series 7 and $10k with Echo).

    4) Throw in the towell and quit. Come back when you have $25k.

    Welcome to of the free. NOT..... F***ing communists!

    #26     Aug 16, 2001
  7. ktm


    One other option for swing traders is to only make purchases in the last half hour of trading. This reduces the likelihood of getting stopped out during the same trading day. It doesn't help those who go home flat, but it will be possible for those who don't mind carrying overnight positions to have fewer "accidental" daytrades.

    If your 4 or 5 day window is "clean", you could buy a stock or two in the morning. Although the IB policy seems to say 3 daytrades, the helpdesk reply seems to indicate that OVER 3 daytrades would put you in the freezer...which is consistent with the SEC regs.
    #27     Aug 16, 2001
  8. Here's another wrinkle. Aren't all of us ALREADY tagged as PATTERN DAY TRADERS?? There is already a Daytrading Margin Call in the books, right? Therefore, we must all be already tagged as PDTs by our brokers. I know Datek does this and has been doing it for quite some time.

    Therefore, IB can't get around the rules by not allowing a customer to trade over 3 times in a five day period, because most of their customers should ALREADY BE classified as pattern day traders. The pattern day trader is NOT a new classification, unless I'm completely in the clouds.

    #28     Aug 16, 2001
  9. Here's -again- IB's official communique as of today regarding the new rule. It clearly says, that sub 25K margin accounts are limited to 3 roundtrips - opened and closed THE SAME DAY wthin a 5 days period.

    "New Day Trading Margin Rule

    Starting August 28th the NYSE will impose a $25,000 minimum equity requirement for “pattern day traders.” Effective September 28, the NASD will impose the same requirement. Consistent with the new margin rules, as of August 28th, if an IB customer’s margin account falls under $25,000 and the customer has opened and closed positions on the same day three times within five days, the customer will not be allowed to open new positions until the $25,000 requirement is restored or the five days have elapsed."

    This is quite a difference to something like "3 roundtrips within a 5 days period" which could mean also overnight holdings within this 5 day period.

    So for sub 25K multiday swingtraders , no problems at all IMHO.

    For what concerns the AMEX issue ( which I brought up to IB today ) we have, again, contrary statements :

    The post above ( IB Rep Tim ) says clearly, that AMEX stocks ( especially the Q's ) are also subject to this new rule, while the helpdesk person I chatted with today said the exactly opposite.

    To be sure, I mailed the AMEX concerning this question - also with regard to trading of iShares and other ETF's , and have still to get answer from them.

    Although ETF's trade like stocks, they aren't really stocks - so it remains to be seen, whether trading in ETF's will also be affected by the new regulation.

    #29     Aug 16, 2001
  10. Either way, IB is trying to prevent their customers from being tagged as PDTs, when in reality, they already SHOULD BE!!

    And, if they already ARE tagged as PDTs as they should be, then they should automatically lose all margin ability if their accounts are under 25k on August 28. The ONLY way to get margin back would be to deposit the required money.

    #30     Aug 16, 2001