I'll be honest. For those that (1) practice sound money management (2) have put in the time required to learn how to chart/find a positive expectancy system, and (3) have cheap commissions -- yes. For those that fail to meet (1), (2), and (3) -- no. Now I'll ask you: (A) For someone with less than 25K that meets (1), (2), and (3), what's the argument in favor of widespread failure that doesn't apply to anyone in general regardless of account size? (B) Is it the govt's business to save me from myself? Perhaps small businesses should only be opened by people with net worths of over 1 million. Because, you know, 90% or more of small businesses fail. So perhaps the govt should start protecting small entrepeneurs from themselves. Wet
Wet- You make good points. You may be profitable, and we definately have different opinions on what is successful. I'm looking to trade mainly to increase my account size to the point that I can live off just the gains of my account by the time I'm out of college. I consider any day that I don't make at least a few k's to be a failure. I know that you don't see things that way. When I had a smaller account, I was happy with a few hundred. You obviously can't make a few k a day with under 25k, but you aren't trying to live off it, so it's fine. As long as you have more at the end of the year, congrats. I know this is a hard business. As for advantages that a larger account has, I have many. Firstly, I have the ability to continuously buy. I always would worry that I would be all margined out and unabled to average down. Now I know that I can average any position, and not run out of capital. Then when my average is good, I can push to at least a breakeven point. This is the biggest advantage. The ability to "move" a stock buy just lifting offers and showing size bids is impossible to underestimate. My account isn't that large in all honesty. If I lost half, I know I couldn't trade in the same way I currently do. This is the advantage of having a larger account. With a smaller account you must get it right [the first time]. I can be close and MAKE it right. I never said that an trader with under 25k won't make money. The point is that he most likely will not. Most traders with under 25k are newbies, and after suffering the learning curve, most will not have enough capital to ever gain it back.
P2 Thanks for your reply. Let me, however, just comment on a few things. Sorry for the length. Bear with me. =============================== You may be profitable, and we definately have different opinions on what is successful. I'm looking to trade mainly to increase my account size to the point that I can live off just the gains of my account by the time I'm out of college. I consider any day that I don't make at least a few k's to be a failure. I know that you don't see things that way. When I had a smaller account, I was happy with a few hundred. You obviously can't make a few k a day with under 25k, but you aren't trying to live off it, so it's fine. As long as you have more at the end of the year, congrats. I know this is a hard business. =============================== It's OK that we have different standard by which we determine if we are succeeding in trading. But the difference is that my definition -- being UP and having a positive equity curve -- is "inclusive", in that it includes your definition, as well as the person that wants to make enough to trade for a living. So my definition doesn't imply a negative value judgments about your style of trading or anyone else's. Your definition (when applied across the board) -- making a few k a day -- or another person's -- that you must be trading for a living to be successful at trading, are "exclusive". They do not include my definition, or possibly another person's that might see a few hundred a week (more than I require, say) as successful trading. I'm not saying you are intending to be judgmental, or that anyone else here is -- but the across the board use of exclusive definitions of trading success that include what you do (say) and rule out all other definitions of trading success is inherently judgmental. So it needs to be questioned on that score. As far as I can see, being UP is the minimum requirement. Beyond that, you can set the bar where you want. But beyond that the bar is not a standard that defines success for everyone. ================================= As for advantages that a larger account has, I have many. Firstly, I have the ability to continuously buy. I always would worry that I would be all margined out and unabled to average down. Now I know that I can average any position, and not run out of capital. Then when my average is good, I can push to at least a breakeven point. This is the biggest advantage. The ability to "move" a stock buy just lifting offers and showing size bids is impossible to underestimate. =========================== I never said a larger account wasn't an EDGE in trading. Of course it can be. Having 5 monitors over having 1 is an edge too. What I said was having a smaller account does not preclude trading success. Nor does it make you "bait". ========================= If I lost half, I know I couldn't trade in the same way I currently do. This is the advantage of having a larger account. ========================= Of course, this is all relative. If I lost half, I couldn't trade the same way either. And someone with twice as much as you would trade differently at your account size. But we can all still be profitable traders nonetheless. ===================================== With a smaller account you must get it right [the first time]. I can be close and MAKE it right. ==================================== Perhaps that it is the case with your daytrading strategy of buying or manipulating bottoms. But that's one strategy. I most certainly do NOT have to be right the first time to make money off a trade. I size in such a way that I take a small loss upon exit (when I am wrong). This is small enough that I can re-enter the trade again and still be profitable. =================================== I never said that an trader with under 25k won't make money. The point is that he most likely will not. =================================== Again, I must ask: why not? If I had 10K last year, and 20K now, and cheap commissions, do you think it is unlikely I will make money? Again, outside of commissions (which can be bypasses with a cheap DAT) there are no real barriers to success trading with a small account. The fact that a larger account may have an extra edge does NOT preclude a small account from success. =================================== Most traders with under 25k are newbies, and after suffering the learning curve, most will not have enough capital to ever gain it back. =================================== Well, lots of wealthy people start trading with much more than 25K. They are newbies as well, no? Also, if you practice money management and have researched a positive expectancy system, the chances of losing so much money that you "can't get it back again" are diminished. But then again, this is no different a story than if you started with 50K. Again, sorry for the length. Wet
Wet, Superb arguments throughout this thread, I applaud your thinking. Too bad these discussions weren't taking place with the same fervor a year ago instead of one month before the new regs go into effect. Do I honestly believe that someone can START daytrading with a small account and be successful? In a word, no. Except for that rare bird they will never recover from the initial drawdown. But so what. If they want to give it a shot I say more power to them. The gov't has no business protecting adults from themselves, and it's a shame voices weren't raised when it might (?) have made a difference.
Folks: i really don't like to engage in tit-for-tat arguments. Especially in this medium -- in face to face discussions it is a different matter -- i usually know the people i am conversing with Wet has really struck a chord here with me, however! His insight of inclusive vs exclusive is what has been bothering me about these newbie (read under 25k accounts) vs pro's (read over 25k accounts) all along! No matter what your account size, i assume we are all on this board to learn, share, and establish community. Community above all else, in what is typically a solitary career. i have taken sarcastic pot-shots at exclusivity, and perceived arrogance, because i have felt excluded! I have a pitifully small account! BUT i am very successful -- in my way of reckoning! I don't live off my trading (yet). But i can absolutely guarantee, that all you hot shot exclusive day-trading wizards, that denegrate me because of my account size -- are not getting any of my money!!!!!!!!!!!!!!!!! First, i doubt that we trade the same stocks! How many of you put $212 in your pocket on NFLD, a $112 in MVL. Who is thinking of going long SYD,IHSC, or CRYP -- get my point. Second: my equity curve looks like a stair case, with the biggest draw down between steps being less than $100. and the risers being around 2 to 700. I took eight straight losses in a row two weeks ago for a $67 loss! Now which one of you took ALL that money? It is a totally different game! Hey, i dabble in the JDSU,ITWO,SUNW,CIEN,YHOO,AMZN,F,T,DIS,HD,etc world too. I have made over 200 trades in these on a strictly day-trading basis and i am down about 35 bucks! Whoa, stand back, somebody is getting rich off of this newbie!!!! Now all sarcasm aside -- i wish i had P's account size! especially since i am at least twice his age. I wish i could trade thousands of shares a day, take thousands of dollars a day out of the market, and have 4 monitors, with super cool charting and data feed technology -- really! I am jealous. But i came to this board to get inspiration of what i can do and what i can become. I didn't come to this board to be told that i can never reach my goals because i am "undercapitalized" regards/greg
Greg.. so basically what you are saying is.. "Its not the size of your account that matters, its how you wiggle your mouse"? =) -qwik
I did a search of http://www.sec.gov and I was unable to find a concrete explanation for why the SEC raised the minimum account requirement to $25K for Pattern Day Traders. Minimum account size should be correlated with margin leverage. The higher the margin leverage, the higher the minimum account size. For example... $ 2,000 min acct size => 2:1 Margin Leverage $10,000 min acct size => 3:1 Margin Leverage $25,000 min acct size => 4:1 Margin Leverage $50,000 min acct size => 5:1 Margin Leverage I don't need nor want the government to "protect me from myself". It's my money to do what I want with it. Imposing a minimum account requirement the way the SEC has done is like imposing a minimum income requirement before you can play the lottery. -------------------- The SEC's definition of "pattern day trader" is welcome in one respect because it clearly defines for the first time what a daytrader is. By doing so, the IRS has to recognize the daytraders when we complete our tax forms. Right now, when it comes to tax forms, it's a gray area. (Or do we still have to wait for the IRS to make the determination of what a daytrader is?) On the other hand, it bothers me that I have to MAINTAIN my "pattern day trader" status by daytrading at least 4 out of 5 days during the whole year. What if I want to take a vacation for a month? I lose my "pattern day trader" status and I lose my 4:1 margin leverage. When I return from vacation, I can daytrade again but not with 4:1 margin leverage. Until I've established my "daytrading pattern" will I be able to qualify for 4:1 margin again. This is just a nasty rule. This will be a nightmare for daytrading firms to implement and enforce. On the other hand, if I had automated trading then I could take vacations all the time I wish the definition of "pattern day trading" was based on certification. For example, a self-employed electrician who has a business license has to pass certain examination to qualify and be recognized as a legitimate independent contractor. In the same way, Pattern Daytrading is a legitimate business. A simple requirement where you need a business license and pass an examination on how the markets work is something I would support. This will only necessary so you can qualify for the beneficial tax treatments and qualify for higher margin leverage. If you don't have a business license or you haven't passed the examination, you could still daytrade but your margin leverage would be 2:1 and you wouldn't qualify for beneficial tax treatment. This way, how I daytrade, when I daytrade, how often I daytrade is nobody's business. I alone, should determine how I'm going to make a living. If the SEC simply said that I had to get a simple business license to be recognized as a daytrader, then I'm willing to do it. I mean... Imagine a rule for a "pattern carpenter" as someone who builds at least desk every 4 days out of 5 days. The definition is pretty ridiculous. We are a community. We will find a way to work with these new rules AND prosper! MGB
Surprised that no one brings up the point that 4:1 margin actually increases the systemic risk in the market place. Bigger positions -> greater risk. With 4:1 margin a 50K-100K account could theoretically be under 25K in the flash of a greenspan comment.
I agree that 4:1 margin is crazy, especially in volatile issues that can easily move more than 25% per day. It also seems interesting that the 3-day lag that most brokers give with margin calls was not addressed - it does not appear that anyone is worried about intraday wipeouts. (This is, of course, assuming that the 4:1 margin actually works out to be 4x on open position value, rather than 4x on dollar volume like some interpretations seemed to have it.) I wish the SEC would just repeal the whole thing. Its only purpose is to enrich the clearing firms with margin interest, and none of its features seem to be really desirable overall... If everyone weren't too much in a "why didn't we complain when we had the chance" mode, maybe reactive steps could be examined.
i agree def.. someone with a 10k account fully margined would only leave the broker holding the bag on a 10k default if the position went to zero as the rule is now.. but under the new rule someone with 25k could end up with a 75k deficit if he was fully margined in a stock that went to zero.. in my view the new rule increases brokers exposure to bad loans because it still allows anyone who is not a pattern day trader the ability to use margin.. and for daytraders the ability to over leverage themselves is doubled.. i think this is just the first of many rules to come to try and regulate the public out of the day trading business.. what amazes me is that i havent heard the first comment on CNBC or any other news source concerning this.. with the number of people affected it would seem that someone would want to cover the story.. even my broker, Cybertrader, didnt mention the new rule in its newsletter that came out a few days ago.. daytraders need to form a union.. or a political action committee.. and we need one of those catchy slogans like -"Cheech and Chong Unite, Daytraders Speak Out".. even better.. we can become a recognized minority.. maybe even get some special rights.. then we can sue market makers if they monetarily harass us.. hehe.. -qwik