Free Ride Cash Accounts

Discussion in 'Order Execution' started by JSHTrader, Feb 3, 2012.

  1. Can someone clear this up for me.

    If i have a cash account with $1000, i buy XYZ at 1.0, gain 10 cents the next day and sell at 1.10 with 1000 shares, i have a 100 profit for a total of $1100.

    Now, do I have to wait for that trade to "settle" for 3 days? Or can immediately use that 1100 to buy a new position? Thanks,
  2. You'll need to do some research on "pattern day trading rule". If you're not a pattern day trader than I believe you're good to go immediately with another stock purchase in a cash account. But if you're deemed to be a pattern day trader, there are restrictions as to how fast you can reinvest. I further believe that if your account equity is > $25k, this rule doesn't apply.

    Sorry I don't know all the specifics. Google the term and do some reading or check on your brokers website.
  3. tommintj


    He can buy with unsettled funds but if he sells within the 3 day settlement period of the first trade....he will have a Reg T violation. A reg T can restrict your account so that your broker will block trade with unsettled funds.

    Think "check kite-ing"
  4. So if I buy and open another position, I have to wait for the first
    Trade to settle before I close my 2nd position?
  5. Correct. You can make another purchase with the unsettle funds, but cannot exit that position, until the first one has settled. You can avoid this by putting up double your position ($2000) and opening a margin account. This will allow you to enter and exit positions seamlessly without being in violation, so long as you do not make 3 round trip day trades in a 5 day rolling period, as THIS would constitute you as a PDT.