I was about to write it myself. The risk comes from overnight positions. And Def rightfully adds the risk with big intraday moves. Anyone short during the surprise rate cut [I think it was 2 or 3 cuts ago], can vividly remember what an intraday gap looks like : scary, scary stuff. however these are rare. gaps against you from overnight positions can be fierce. liquidating positions automatically is not enough in these cases. the higher the leverage, the more dangerous it is obviously. neo
ok guys - i catched it. it's certainly a question of trading style - for example trading extremely illiquid markets can sometimes be a big risk. holding overnight positions of course too. thanks
LionSec, My apologizes to you. I did not see this thread before starting a new one on some recent articles on the new SEC rules. If I had seen your thread first, I would simply have added to it. Thanks for the work you did on this thread
No problem... You may want to read these two: The New Daytrading Margin Rules: A Primer By Diane Hess http://www.thestreet.com/_yahoo/markets/taleofthetape/1525781.html Some Guns Will Be Holstered Under New Margin Rules for Daytraders By Diane Hess http://www.thestreet.com/_yahoo/markets/taleofthetape/1524730.html
LOL... "The amendment was intended to address criticisms that too many inexperienced investors were borrowing huge sums "on margin" from their brokerages for investing" So how was it that an investor with $2000.00 was "borrowing huge sums"? Were they giving 50:1 margin??? What is meant by "HUGE"?
EC...yeah, that one is funny. I also thought this quote from Ameritrade in fast's post of the WSJ Online article was just plain stupid: "She acknowledged that some of the Omaha, Neb., firm's other customers may be surprised to learn that they are day traders under the new rules and face higher margin requirements. Still, she said Ameritrade doesn't expect to lose customers, since all brokers must comply with the same rules. 'Where would these customers go?'" Er..Um..how about they won't trade! Who cares where their money is parked? Ameritrade doesn't make anything if their customers aren't trading. Not that any self respecting daytrader is using Ameritrade, but I'm amazed at how the online guys' PR departments are trying to sugar coat it to keep people from dumping their stock. Reading all these articles seemed surreal to me. I still can't believe this happened here in the good 'ol USofA...but I'm beating a dead horse. Amazingly enough, (I just checked) it is still legal to go to Vegas and gamble with money off your credit cards...apparently that must be much safer. Kirk
My God they are a smug bunch! "'Where would these customers go?'" ...Indeed!!! How about trading something else?... real estate... cars... baseball cards... art... guns... Nope there certainly is no where else to go in a free market. We must trade stocks and according to their silly rules. Bah!
Actually, Ameritrade makes a boatload of money on inactive accounts. B/D's-especialy one's that are self-clearing-make money on the "float", or the difference on what they pay in interest for assets swept to money market accounts while traders are flat and the interest the b/d receives by investing the huge amounts of idle cash in overnight liquid assets. A few basis points on a zillion dollars adds up. This was a big component in why they offered the cheap trades to begin with in addition to the payment for orderflow scenario. It's all about assets under managment-including those parked in cash-and they may lose a lot of it if people simple decide to close the accounts with the new rule.
I don't disagree with you tradecourse, but there will only be interest disparity, and no $8 bucks a trade or payment for order flow a couple times a day...that will have to hurt. Certainly more than the arrogance of Ameritrade's spoksperson would lead you to believe. And if they can't trade, will they really leave their money sitting there doing nothing? I'm with El Cazador on this one...I just think they'll find some other use for it. Kirk
I just did not summarize well.... My point was that it is even more hurtful to them since they will lose even more than the commissions....they will lose the float too... so yes their rep was an idiot for making those comments.....but what do you expect them to say "Yes this is a difficult time and we are fearful that we will not me able to stay in business much longer but want to thank all of our customers for their support, and most of all thank Stewart for putting us on the map to begin with."