New Sec Rules...

Discussion in 'Trading' started by alain, Jun 27, 2001.

  1. alain


    There is so much confusion about the new rules.


    New NASD/SEC Rules Affecting Short-Term Trading

    The rule change will affect day traders. The rule defines a “day trader” as someone who buys and sells a stock in one day (known as a “round trip”) four or more times over a five-day period, unless those trades comprise less than 6% of the trader’s total trades. So if you make 4 or more day trades over a five-day period and these trades represent more than 6% of all your trades, this rule affects you.

    · Day Trading Buying Power will be increased from 2-to-1 up to 4-to-1. So you’ll be able to buy up to four times the amount of excess equity in your account. This is a dramatic increase in buying power for day traders!

    · The rule will require an increase in the Day Trading Minimum Equity Requirement. You will need to maintain at least $25,000 equity in your account in order to day trade.

    · The due date for day trading margin calls will become 5 business days, instead of 7 business days.

    · Money deposited into an account to meet a day trading margin call would have to remain in the account for at least two days (rather than the current one day) after the close of business the day the deposit is made.

    · If you have a day trading call that has not yet been met, your account is restricted to 2-to-1 Day Trading Buying Power based upon your total trading commitment until the call is covered. Also, the call for that day is not calculated based on Time & Tick. That means you would be responsible for 50% of all your entry positions added together.

    · The sale of an overnight long position, or the repurchase of an overnight short position would not be considered an entry position, so long as you did not add to that overnight position first (e.g. you are long XYZ overnight and then buy more shares of XYZ before selling XYZ – that would be considered an entry position because you bought more shares before selling).

    · Day traders cannot use guarantees between customer accounts at the same broker-dealer (a.k.a. Cross-Guarantees) to meet the Day Trading Minimum Equity Requirement or Day Trading Margin. So a day trader cannot avoid a margin call by having guarantees from the accounts of other customers at a broker-dealer. Each day trading account would be required to meet its margin and equity requirements independently by using funds on deposit in that account.

  2. These rules are awsome, I don't know why anyone is complaining unless they have under 25k, but they shouldn't be trading if under 25k anyway. I really love these rules.
  3. alain


    This is what I think so too... that's why I posted this article. Others seem so confused about it.
    The only major changes are that you have to have the 25K to trade on margin or daytrade and that you will then have 4 to 1 Margin.
    By the way I don't know how daytrading is profitable with less than 25K.

  4. Than again - for the *little guy* there are other vennues;
    Moving to Chicago and trade on the MidAm floor - this is
    not that cheap but $15-20k would do it.
    Move to IB and trade only Naz and e-mini SPooz on the computer. Not bad (for 6-10k )if you have it.
    Trade with longer time frame and (get a job ;) this may not
    be that easy (the job part ;) if there are no skills....
    I kinda sympatise with those whos account just dipped below
    25k and living off the master card. My good friend Nunzio
    is making out loans for traders (and poker players), if
    interested just let me know.
  5. Wet


    P2 and Alain

    I have an account under 25K. I don't daytrade, I swingtrade. The new SEC rules will affect me. There's ways around it, but it will affect me.

    To say that people with under 25K shouldn't be trading is blatantly elitist and somewhat arrogant. I do fine swingtrading with less than 25K.

  6. NKNY


    I just have a question,

    If your under 25,000 do you still have 2:1 margin and if so do you loose it if you triggor the day-trading rule by making 4 roud trips in a week that represent 6% of your trades.

    thank you.....

  7. wet, you can trade options still. I think if you are swinging, options are better than common anyway.
  8. Although I'm not personally affected by this, the new rule upsets me greatly for these reasons:
    1. It represents a concerted effort to wipe out a certain portion of the daytrading community by those who view daytraders with contempt and disdain.

    2. The minimum account requirements are arbitrary, and who's to say they won't make another arbitrary change in the future to push more traders out? Sure, right now it's $25,000 minimum, but what is to stop them from later deciding the minimum should be $100,000? Or what if they decide that you shouldn't be able to daytrade unless you are a professional and have a series 7?

    3. The most insidious part of this is the SEC claiming to be trying to "protect" traders from themselves. Thanks but no thanks.

    When I started out trading, I sustained "learning" losses that took my account below $25,000. If this new rule was in place when I started out, I might never have had the opportunity to continue trading and ultimately become successful at it. The bottom line is that these new rules are arbitrary, and they scare me because I fear that this is not the last of the "rules" and "protection regulations" the SEC will throw at the daytrading community to squeeze more traders out.
  9. Wet



    I don't trade options, and have no desire to. I do just fine with equities. Besides, I don't want the SEC telling me what I can and can't trade.

    Also, I agree with ZBoy. This is simply class-based paternalism. Last time I looked, people with 25K up were no smart than those with 25K down.

    Be careful with your support of the rule (I suspect you've been bought off with the 4:1 margin bribe). As ZBoy says, what will you say when they up the requirements to a point that you can no longer trade?

    Will you think the rule is paternalistic then?

  10. What is even worse is the fact that people can not daytrade from cash only accounts. That in my opinion is more discriminatory than the 25K minimum for margin accounts.
    If you are trading with your own cash who is to say how many times can you trade in a day.
    #10     Jun 27, 2001