Thanks everyone for such informative posts. Though this regulation will definitely hamper my efforts somewhat, I will make due with my trades every 3 days or so
That with all the problems the friggin government has they want to get into the daytraders mind and try to regulate what you can and can't do. Why doesn't the friggin government learn how to regulate themselves. Most people can take care of their trading decisions themselves. If I want to blow out my account thats my right! I don't need the beauracrats telling me how to invest or trade for that matter! I suppose they want you to hold overnight or for multiple days on the long side when the dow is dropping 800 points in 3 days or hold overnight when earnings season. Talk about risk! rediculous! It just gets me furious! In this volitile market you need to take profits when they are there! If it means 3 trades a day, 15 a week or more to be successful, thats what it takes! RRRRRRRRRRRRRRRRRRRRR!
Free Riding only applies to selling a position in order to pay for opening that position. In any cash account one must have the funds already available at the broker before on can buy a stock. The problem being discussed here is a question of whether one can buy and sell many times in the same day using the funds in your account, i.e. T+0. For the answer to that question please look at this message at a Silicon Investor site. http://www.siliconinvestor.com/stocktalk/msg.gsp?msgid=17850859 It seems that some powerful interest are lining up to fight NASD and their incorrect interpretation of the rules. Good trading Steve
This is exacly how I feel. Attempting to regulate trading in this way isn't the answer, it was a inept suggestion to defer the responsibility of traders to an outside source. I lost a good amount of money initially and I'm glad I did and take full responsibility for it. But please don't micromanage my trading Mr. SEC. cocobop, thank you for the link. I will peruse it later tonight.
With most direct access brokers you do not need to worry about spending an amount greater than your buying power because the software will not allow it. But this is part of the firm or clearing firm POLICY, not part of the regs. Some traders, even retail, are allowed to trade huge size (many many times their buying power) as long as the money to satisfy the trade is in the account by settlement day, T+3. This was quite common a few years ago. It is not nearly as common now, but is still legal and still done regularly for good reliable clients (broker trusts the client to pay because if they didn't the broker would have to cover the trades). I suspect Datek's potential problem may stem from the "good faith customer agreement" provisions of the rules relating to their purchases and then subsequent sales. I wouldn't be surprised if in fact in the end the NASD's interpretation of the rules proves to be correct. See rule below. TITLE 12--BANKS AND BANKING CHAPTER II--FEDERAL RESERVE SYSTEM PART 220--CREDIT BY BROKERS AND DEALERS (REGULATION T)--Table of Contents 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; In the good old days we use to do this all the time for a lot of money. If a good setup appeared, we took the trade. Worried later about coming up with the money by settlement. OOOOOOPPPPS. I mean before selling it. LOL!! This case will probably rest on the definition of what constitutes before selling it. For example, is it OK if it is paid for by the end of that business day, or even by settlement day or does it mean that in fact the money must already be in the account at the time of the sale. This case may come down to interpreting the spirit of the law and splitting hairs. But splitting hairs is what some auditors like to do. With Datek it could just be a case of a GREEN auditor wanting to make sure he understood the rules so he read them really really carefully so he wouldn't screw up, then said "Oh My God!!! Look what I found." He would have been just as excited as a young astronomer discovering a new planet. Government regulating auditors really get off on this SHIT you know! I really don't know anything about the Datek case. But over the years I have had a lot of auditors on my ass, up my ass and every where else!!!! So, I do know a lot about that!!! It really wasn't that funny at the time!
if you are labelled a PDT and have less than 25K in your account; -> IB will NOT let you do anything except close your positions until the PDT has expired, or your account is over 25K. -> etrade will let you trade the full amount of your cash position, but ONLY until the amount. for example, start the day with 20K in cash, trade 12K in stock, after that you can ONLY trade an additional 8K - no more. the next day, your account starts with 20K +/- your profits for that day. the PDT rule is one of the stupidest rules ever put on the books. IB is unfortunately doing it as the SEC has mandated (though the wording of it is NOT consistent)... the irony is that it's probably also illegal to have this rule, but what are people going to do? if you've only got 25K to trade, you can't hire a lawyer to sue the SEC...
The problem with this rule is that it have been wrote in old days, when no electronic banking system was available. At this moment, we can conceived that every transaction was processed manually, but since this time the computer have been introducing and now we could check live our balance with T+0. T+0 could be real if we want, but it seem the SEC don't want update the rule for T+0 even if electronic systems are available for do it.
it's $25k only if you are on a margin account. if you day trade with a cash only account, you can trade as many times a day if you want (at least on Datek). On the other hand, if you have less than $25k and day trading.. you've either a) lost a ton and aren't able to make money back up to $25k anyways b) undercapitalized and potentially self destructing or c) both