Pattern day trading various

Discussion in 'Trading' started by spinn, Jun 29, 2007.

  1. The Day Trading Regulations

    A Brief Summary

    Since September 28, 2001, the NASD’s and NYSE’s new set of industry-wide regulations regarding day trading have been in effect. These regulations established new industry-wide definitions, thresholds, and regulations.

    We urge you to read the following FAQ’s to learn about the NASD/NYSE’s day trading rules.

    1. What is the definition of a Day Trade?

    A day trade is the purchase and sale (or short sale and purchase) of the same security on the same day in a single account.

    2. What is not a Day Trade?

    Liquidation of overnight positions (or purchase to cover a previous day’s short sale) of the same security the next day will no longer be considered a Day Trade.

    3. Does the rule apply to day trading options?

    Yes. The day trading margin rule applies to day trading in any security, including options.

    4. Does this rule apply only if I use leverage?

    No, the rule applies to all day trades, whether you use leverage (margin) or not. For example, many options contacts require that you pay for the option in full, that is at 100%. As such, there is no leverage used to purchase the options. Nonetheless, if you engage in numerous options transactions during the day you are still subject to intra-day risk. You may not be able to realize the profit on the transaction that you had hoped for and may indeed incur substantial loss due to a pattern of day-trading options. Again, the day trading margin rule is designed to require that funds be in the account where the trading and risk is occurring.

    5. What is a Pattern Day Trader?

    If you day trade 4 or more times in 5 business days within a single account, you are a Pattern Day Trader.

    6. What if I haven't been a Pattern Day Trader? Is my account considered a Day Trading Account?

    Yes, your TrackTrade account is automatically considered a Day Trading Account, by definition. It does not depend upon your trading pattern because industry regulations state that accounts specifically designed for day trading are automatically Day Trading Accounts.

    7. What is the formula for calculating Day Trade Buying Power (DTBP)?

    The regulations allow DTBP that is four times maintenance excess. This increased leverage is not automatically available in your account, but may be available upon request However, if there is an outstanding Day Trading Call in your account, increased DTBP will not be available until the call is met.

    The Basic Formula for Day Trade Buying Power:
    4 X Maintenance Excess = DTBP
    How to Calculate Maintenance Excess:
    Total Positions + Total Cash = Total Equity
    Total Equity - Non-Marginable Positions = Margin Equity
    Margin Equity - Maintenance Requirement = Maintenance Excess
    The value of positions is based on the Mark to the Market (closing prices from the previous trading day).

    8. What are the Minimum Equity Requirements for Day Trading Accounts?

    All accounts that are classified as day trader accounts must maintain a minimum equity of $25,000. Track Data Securities requires $30,000 to establish the account.

    9. What will happen if my Day Trading Account falls below the minimum equity balance?

    A minimum equity call is issued. Your account will trade on a cash basis only until funds are received to meet the minimum equity amount. This means that all opening positions will be held at 100% aggregate.

    10 . How can I get enough funds into my account to meet the $25,000 minimum?

    A Minimum Maintenance Call is issued. The call should be paid for by the next business day. If this call is not met on time, any and all marginable securities in the account may be liquidated to meet this call. In addition, the account will be reduced to 1 times buying power and all positions will be held at 100% aggregate. Please contact our margin department for any questions you may have.

    11. When is a Day Trading Call generated?

    A Day Trading Call is generated when you exceed your Day Trading Buying Power at any time of the day. Our software has safeguards designed to prevent you from exceeding your Buying Power, but the ultimate responsibility for following the guidelines is yours.

    12. How long do I have to cover a Day Trading Call?

    You have trade date plus five business days (T+5) to cover the call.
    Note: until you meet the call you will trade at 1*aggregate cash. All opening positions will be held at 100%.

    13. What happens if a Day Trading Call is not met by T + 5?

    If a call is not met by T+5, the account will continue to trade at 1*aggregate cash, with all opening positions held at 100% for 90 days or until the call is met. If you receive and fail to meet a second daytrading call, your account will be restricted to liquidating transactions for 90 days.

    14. How can the Day Trading Call be met?

    The call can be met by depositing cash equal to the amount of the call or fully-paid-for-margin-eligible securities in two times the amount of the call. You cannot liquidate positions to cover this type of call.

    15. Can I withdraw funds deposited into my account to meet a Day Trading Call or the minimum equity requirements immediately after they are deposited in to the account?

    No, funds used to meet a Day Trading Call or the Day Trade Margin Account minimum equity requirements must remain in the account for at least 2 business days following the close of business on any day in which the deposit is received. The funds deposited into the account are still subject to our standard rules of deposit, however. For example, if you pay by check, you may not withdraw that money for eleven business days.

    16. If I have a Day Trading Account, why should I be at all concerned with Overnight Buying Power (OBP) since I’ll get Day Trading Buying Power (DTBP)?

    Although you may be allowed to have extra Buying Power in a Day Trading Account, you can only use it for Day Trading. Track Data Securities’ policy prohibits the use of DTBP for overnight purchases. If you use DTBP for trades that are kept overnight, you risk incurring a Reg T call. See the following example:

    At the end of Day 1. . .

    you’re flat.

    You have $25,000 in your account (all cash) overnight.

    Thus, for the beginning of Day 2. . .

    you have

    DTBP of $100,000

    OBP of $50,000

    During the trading day of Day 2, you use much of your DTBP—at one point during the trading day, you’re using $90,000 in buying power. That would be fine, BUT

    at the end of Day 2. . .

    you aren’t flat.

    You hold $60,000 in securities and no cash.

    You may have thought you were okay because you didn't exceed DTBP, but that’s not the way it works.

    You have exceeded OBP and will get a Reg T Call, probably the morning of Day 3. You will have 5 days to meet this Reg T call. You must meet this call by depositing $5,000 in cash or $10,000 in fully paid-for marginable securities—the call cannot be met simply by liquidating existing positions in your account.

    In short, if you aren’t going to be flat at the end of the day, be careful. Watch your OBP.

    [Please note: regular margin rules still apply in this situation. Thus, in addition to the Reg T call described above, you could also be subject to a House Call or Fed Call.]

    17. Previously, most Day Trading Calls were generated by the liquidation of an overnight position and then repurchasing/shorting that same position overnight again. Will this activity still cause a Day Trading Call?

    No, this activity will no longer cause a Day Trading Call. The new rules treat the sale of an existing overnight position as a liquidation and the repurchase of the security as a new position. Therefore, this activity will not be considered a day trade and will not be subject to the rules affecting day trades. Of course, if you trade a third time before the end of the second day, selling the security you repurchased that morning, it would count as one day trade.

    18. Can I cross guarantee my accounts to meet and maintain the new minimum margin equity requirement?

    No, each account (not client) is required to meet applicable requirements independently, using only the financial resources available in the account.

    19. Once the Pattern Day Trader label is applied to me, does it mean that it's applied to all my accounts with Track Data Securities, including my myTrack accounts?

    No, it's on an account by account basis. The designation of an account as a Day Trading Account or being considered a Pattern Day Trader does not spill over to any of your other Track Data Securities accounts.

    20. Is this industry-wide? Do all brokers have to comply with these rules?

    Yes, the new day trading rules are NASD/NYSE requirements that will have to be followed by all brokers.

    21. But I heard from another brokerage firm that their Day Trading rules are less stringent.

    Some customer service representatives at other firms give this impression, probably because they have not yet been properly educated on the rules. But in the end, these new Day Trading rules apply to all firms - there is no room for interpretation, no discretion to allow exceptions.
    #11     Jun 30, 2007
  2. spinn


    The answer is you cannot trade two different options in the same day.

    I traded two different strikes on OIH and IB counted that as two day trades.

    Frustrating as hell becasue I really "see" OIH. I shorted a few pennies from the top twice and covered a few pennies from the bottom....twice.

    I wish some of the crooks that are making 5% a year and getting paid $50 million to do it would open their eyes and stop freezing out people who have come up with good things.

    I am up 7%...on the week...and am done because of this stupid rule.

    So I gess I have to trade futures...becasue they are less risky???? Can someone explain that to me?
    #13     Jul 5, 2007
  3. spinn


    #14     Jul 5, 2007
  4. I can relate a few actual experiences with Interactive Broker
    regarding the subject of day trading options and restrictions.
    I have taught a few friends to trade options.
    Some of these friends started with small accounts ($5K to $10K)
    and used I.B. as there broker.
    Those with accounts less than $25K who signed up for "Margin Accounts" were shut down if they did 3 option day trades (open and close trade in the same day) in a 1 week period of time.
    Those with accounts less than $25K who signed up for "Cash
    Accounts" were never shut down, regardless of how many option day trades they did in a week.
    And of course those with Margin Accounts $25K or >
    were never shut down regardless of the number of option day trades in a week.
    Interesting side note:
    One of the individuals with an account under $25K initially (and accidently) signed up with an I.B. Margin Account.
    When I told her they would shut her down after 3 day trades in a week, she requested that I.B. change her account to a cash account.
    I.B. said they couldn't just change a margin account over to a cash account, there was some rule against doing that.
    So she cancelled her I.B. margin account and they refunded her account balance by mail.
    She then applied for a totally new cash account.
    It worked and she has been trading ever since.
    #15     Jul 5, 2007
  5. hadman


    So a non-margin account has not day trading restrictions?
    #16     Jul 5, 2007
  6. spinn


    Thanks thats good to know. The issue would then become the fact that I only have a $2000 account and their new minimum is $5000 so I doubt I can close and reopen a new account.

    That second trade is now almost $4 in my favor but I can see the bounces so I got out just before a $1 dead cat bounce.

    I really cant day trade because I am now working 9-5 and sit 2 feet from my boss.

    I guess I could put a laptop under my desk with my secretary but I would much rather be sitting on a boat somewhere.

    Working is really costing me a fortune.
    #17     Jul 5, 2007