Micheal, I couldn't agree more. If the SEC is supposed to be "mitigating" risk, then why insist on margin accounts? Personally, I don't use margin, being conservative in nature. I have margin coverage (for shorting) but I rarely short and I never use my margin to buy extra long positions. If it weren't for the possibility of shorting, I'd have a cash account. Wet
Let's say that you've been labelled as a daytrader, but in reality you are a swingtrader with a streak of bad luck (stopped out intraday on too many trades within 5 days) which puts you under $25000. You do another trade, which you don't intend to be a daytrade, but your stop is hit intra-day. Is your stop nullified because it would be a daytrade, which you are not allowed to do because you are now under $25000? Are you forced to carry overnight even though that means more risk than stopping your loss quickly? Perhaps you think you were stopped out, but the next day the broker disallows the trade because now you're over your daytrade limit... Is this possible?
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Here's another thought that just passed through my head. Could the new rules actually be trying to wipe out daytraders on both sides of the $25K mark? Hmmm, let's see. We know that traders with less than $25K will already be out of the game, and then the SEC throws in 4:1 margin for those who are still in. While it seems like a great thing for some traders (and it is for a certain portion of experienced and disciplined traders), it now gives you the chance to leverage much more heavily, and subsequently there will be many ill-equipped traders who see that and say "Ooh, more buying power" and get in even further over their heads with much greater position risk. I personally rarely use much of my margin now at 2:1, and I certainly don't see myself needing to use 4:1 (that's just me). But I get the feeling that while some traders will utilize it properly, by granting 4:1 the SEC is giving a lot of lesser experienced traders a nice big noose to hang themselves with, and in effect wiping out even more daytraders, which has become clear to me as the ultimate goal for the institutional financial complex.
Zboy, Oh come on, now! Can't you see it? It is more than obvious that a person with 27K in their account is infinitely better at trading, more professional, more concerned about proper risk management, than someone with 24K, or 22K, or good god (gasp) those with 15K. Since 25K up traders are in a totally different league, they can responsibly handle that 4:1! Remember, the SEC is all about mitigating risk! They wouldn't offer 4:1 to such traders unless they knew for sure they were smarter! LOL! Wet P.S. I'm waiting for the SEC to increase this limit to 500K, with the promise of 10:1 margin for those meeting the requirement. I'm curious what the "you shouldn't be trading with less than 25K" bozos will be saying then when the people with more than 500K start saying "waste of time to trade with less than 500K".
I think these new rules Should be challenged in court and they eventually will be. But who will do the challenging and when I don't know...... The problem is that they are backed by the brokerage industry and the big traders aren't voiceng an oppinion because they have in effect been paid off like WET suggested in an earlier post with the 4 to 1 margin. The 4 to 1 margin will result in bigger block trades which equals higher revenues, add to this additional revenue from interest and you have a recipe for larger profits so count the brokers out of any class action.... But I have many questions... does all this make the new rules right...are they ehtical ? 2.Is it really good for the little guy or is really good for the institutions. 3. Are the traders with more then 25,000 dollars smarter then those with less and if not, are they safe. Remember margin is a double edged sword. If they start loosing hefty amounts of money due to 4 to 1 margin, and believe me, many of them will because of failure to understand the real risk of using 4 to 1 margin. Will the SEC jump in and "protect" them the next time around. 4.How will the new ruled effect the markets, Liquidity...ect The truth is that these new rules are inconsistant with capitalism and free markets, and actually lean towards socialism and protectionism..... I personally think that they also infringe on our civil liberties. Whether you are effected by the changes or not I know that deep down you know and agree that telling or rather "dictating" how someone should trade his own money based on his account balance is ridicules and discriminatory. Being of Greek backround, It kind of reminds me of a crazy law they had in greece, (The cradle of Democracy)... that may still be in effect. That law prohibited you to purchase any car that you liked. Instead you Had to rely on the Government to choose how and what you could purchase based on your Earnings . You had to buy what the government thought you could afford. So if you earned a lower wage ... you were forced to buy a compact car. For example, They actually had lists of cars that someone earning 30,000 dollars was allowed to purchase. I guess the government wanted to protect the little people from getting into to much debt while protecting institutions from defaults. Isn't that nice... The people with the power to change, the higher wage earners didn't complain because it didn't effect them. They were also in effect "paid off" by being allowed to drive anything their little heart desired. If you don't voice your opinion now, don't be suprised if you wake up someday day and can't choose the car you purchase. Think it's far fetched.... I read somewhere that the bankruptcy rate is up and creditors are seeking reforms to make it harder on individuals to file for bankruptcy. Maybe preventing you from getting into debt you can't handle in the first place (in their opinion) might be an option somewhere down the road. NEVER in America you say. That seems to be the road were on. Think about it... If someone told me a couple of years ago that someday I wouldn't be allowed to buy and sell the same stock in the same day more then three times in a week for "MY PROTECTION" based on my account balance. Well, you guessed my reply ...Never in america my friend. Nick kohilas
Overall I agree with Zboy who is to say they don't soon say $50,000 than $100,000 than $300,000 and so on and so on. I'd rather they not place these type of limits on others. Professional traders might not be affected by this as this is a modification of Regulation -T. Professional Traders aren't held by Reg -T. But some of the traders they are wiping out by doing this are the traders who feed me my daily profits. The disucussion of falling below that level is another one. Traders who get into a drawdown who have just a small amount over can easily fall below if they hit a bad streak. Is is right to then limit them from a decent/ quick recovery. Disucussing this of what is and isn't allowed now won't do most of us much good. It seems nobody knows. rtharp
JayS- Jeeeeeeesh I did not know this !!! Anyway, there are many vennues for the smaller accounts. IB is my fav. Seriously, while I am appaled by the SEC rule and it's spells trouble to all liberties and freedom in this country (this is not the first and last act from the Fed !) I have to say this - humor me just for a second !!! Savings in the US are very low (one can't legislate it) yet the same discipline is needed to save as it required to trade in a professional manner. So if you can't step back and save some, you likely just give your money away to the Boyz in the Street anyway. Also I suspect hundereds of thousand of small accounts were in fact wiped out and many firms held the bag so to speak. 25k is not just a "magic" number it is an estimate as one trader can possibly lose in one day as worst case!!! It's the same number pro firms need to trade as LLC trader.
To me, the 4 to 1 margin makes perfect sense. It allows you to daytrade whatever is in your account...every day. For example, let's say you have $30,000 in your account. Lets pretend its a new week. Monday, you daytrade $30,000 worth of stock. How much is available to trade on Tuesday? Answer: $30,000 because of a 2 to 1 margin ratio. Let's say you daytrade $30,000 Tuesday. How much is available to trade on Wednesday? Zero. How much is available to trade on Thursday? Zero. Why is this? Because of the three day settlement rule. Because of 2 to 1 ratio and the 3 day rule, you will not be able to trade again till Friday. You will have $30,000 of funds available for Friday. This has always bugged the hell out of me. You can't trade because it takes 3 days for the books to settle? Geez!! With 4 to 1 margin ratio, you can trade $30,000 Monday, Tuesday, Wednesday, Thursday, Friday, etc., to infinity, granted you don't actually lose money. This is a good rule. You can increase your trading activity, without increasing your risk at all. It just allows you to trade your own money everyday. If it is true that you can only trade 4 times every five days even if you have cash, then that is nuts. Can you imagine having 20k in your account and only being allowed 4 trades a week? That blows! I will support a campaign to email your Congressmen and Senators to at least put this rule on hold. It may not do any good, but it won't hurt to try. I will paste a link for email address of all Congressman and Senators. http://www.webslingerz.com/jhoffman/congress-email.html What we need is a good form letter to copy and paste, and email our representatives. Perhaps emailing the SEC would be worth the effort. It should only take about 3 minutes to copy and paste and send an email. Any volunteers for the form letter?
I too started with 30k. At one point i was down to 17k. Had this rule been in place, I would have never recovered. I don't think the sec will change this again, b/c all the browser brokers will complain. These guys were left holding the bag on undercapitalized "traders" last year. But they won't let their revenue disappear. I'll soon be professional, and this will not affect me. I recommend that anyone who is too concerned do this as well. I have nothing against newbies, I like to pick their pockets every so often (if you know what I mean).