thanks everyone for the input/links something that I haven't seen cleared up is this: inorder to be able to trade with 4:1 margin, do you have to be a pattern day trader(according to the defn of SEC)? in other words, if you do not fulfill the defn of PDT does your ability to ramp up to 4X get taken away until you do fulfill the defn? can anyone answer this? Thanks.
this rule seems very unfair for small traders.. as i understand the way a cash account works, if you have 10k in the account and buy 1000 shares of an 8 dollar stock.. even if you sell that stock, your buying power is reduced to just 2k until the next day.. combine that with the inability to short and trading is nearly impossible.. The force behind bigotry is not hatred, it is prejudice. Today in America we all agree that to discourage someone from pursuing an education in medicine or law based on the color of their skin or their financial background is wrong, even though so many people dont make it. We also agree that discouraging people from opening a small business based on their limited funds is wrong, even though 90% of all new businesses fail within the first 5 years. In fact, the government actually has programs that encourage and help enterpreneurs with limited capital, for example look at the SBA loan program. The difference between a free society and a communist society is that in a free society people have an equal right to fail and to succeed. In a communist society the government uses its prejudice to decide who is smart enough or capable enough to succeed, and the others are denied the opportunity to compete. How disappointing it is that the SEC, using a mindset that says people with less than 25,000 dollars are not as smart and capable as people with more than 25,000 dollars, has imposed its prejudice upon those with small trading businesses in America. i started trading with just 8k.. had there been such a rule in Nov 99 i would not have been able to become a trader.. enought ranting.. this rule wont really even affect me, but it still makes me mad.. -qwik
Yes, this is all true and the time for protesting has come and gone unfortunately. And to clarify, unless you have th 25K you realistically cannot daytrade on the long or short side. Obviously shorting requires margin. But essentially so does long trading as well. A stock trade currently takes 3 days to settle (T3) and technically your buying power is tied up during the settlement period. It has been the practice of DAT brokers to lend you your buying power when ever you close a position ("instant clearing") to give you the use of your equity/buying power an unlimited number of times per day. But to do this, the trades default to margin trades even if you do not need the margin for sufficient buying power. Thus, if you have no margin.....no instant clearing and availablity of buying power on an intraday basis....and therefore no daytrading. This rule sucks no doubt and we are all to blame for not making more noise when it was in the evaluation period.
To my understanding, if you have a cash only account you would not be limited to a certain number of daytrades per week (by the way it's 4 daytrades per week, not 3). To answer someone else's question, if you are not defined as a pattern day trader, you do NOT get the 4-1 margin. To answer whether the rule is definitely going into effect, the answer is YES. The proposal was made many months ago, there was a comment period (and actually quite a large number of traders and brokers made objections for the record), but of course the rule still passed and will go into effect for sure this September. The other important thing to remember is that this new rule only applies to PURE DAYTRADES. That means that you could still buy or short a stock and close the position the next day without it being considered a daytrade. So basically what traders who have margin accounts but don't have the $25K are going to have to do to continue trading is one or more of these things: 1. (Somehow) deposit more money into your account to bring it up to $25K (I know, duh ) 2. Know that you have 4 pure daytrades you can still do each week; choose them wisely my son... 3. Become adept at being a multi day swing trader and holding positions overnight and liquidating them the next day.
On a bright side, one only needs to have 25K deposited to the account. It doesn't necessarily mean that you need to trade with all of it. If you were going to start your trading career with 10K you can still do so, but you will have to be disciplined and not use remaining 15K for trading. Of course it doesn't help those who can not put together 25K. It is definitely very discriminatory rule and I am surprised that online brokerages were not able to fight it off. I also think that it will not be enforced very strictly.
I just want to know which moron decided that buying and selling in the same day was riskier than holding a position overnight? I mean, I realize that we aren't as smart as "them" and they know what's best for us and all, but that seems counterintuitive...oops, is it ok for me to use big words like that? I better clear it with the SEC... Kirk
The passage of this rule is flat out liberalism. When the internet bubble popped last year, there were a lot of people who lost a lot of money. People who bought Yahoo, Juniper, Cien, and a host of other stocks at $200 plus, and held them all the way down got killed. Also, that guy in Atlanta, who lost a ton of money, and went and shot up several people at that stock brokerage firm, did not help matters. So the Liberals in Washington, D.C. decided to "protect" us from our deeds. So they pass a rule that dictates to us how we invest our own money. THIS IS WHAT LIBERALS ALWAYS DO. They pass rules and laws to protect the masses, cause we don't know what is best for us. So remember, voting does matter...everytime. Always know who the liberal candidate is. Now I will get off my soapbox. Have a good day.
This is the fly in the ointment to all of this. This new rule places a huge new burden upon the brokerages, in particular the ones that cater to both daytraders and investors, who will now have to inspect and monitor every one of their clients' daily and weekly trades and then figure out if it fits the profile outlined by the SEC. I suspect, as you do, that many brokerages, particularly the ones that fought this rule will be less than stringent with going through the huge ongoing task that will be upon them.
zboy, Let's hope so. I personally, as a trader will not be affected with this rule but it definitely has potential to affect not only brokerages such as IB, Datek ... but also the whole industry that caters to would be traders. Eg. QCharts, Esignal, daytrading books, courses etc... We should try to develop a trading strategy that will work around this rule so that it could still be possible for a person with limited funds to have a shot in this game.
I have a datek account and i havent heard a thing from them regarding this new rule- wonder when theyre gonna get around to telling people. Matter of fact, I'm gonna call them and ask them how they are going to handle it- maybe that will shed some light on things- if they don't seem too concerned...