Question about Day Trading buying power

Discussion in 'Trading' started by StevieP, Apr 11, 2009.

  1. StevieP


    Hello. I am new here and new to trading. I have a couple of questions about day trading BP. Is the BP dollar amount the maximum you can trade in a day or the maximum you can make with a single trade. For instance if your BP is $50,000.00 can you make trades of $50,000,00 over and over again all day, or can all your trades only total $50,000.00 in a single day?

    My second question. In figuring BP do they count only your cash amount or cash plus other equities held in the account?

    Thank you in advance, I am sure these are very basic questions for most of you, but it would be a big help for me.
  2. ttonca


    Hey Stevie, to answer your questions:

    1. Yes you can make multiple trades per day as long as each individual trade does not surpass 50k of course.

    2. Typically the total is counted based on both cash and equities combined.

    Hope this helps.
  3. For account over $25000:

    For account under $25000

    In your example of having a $50000 account value, you would
    have $200000 of buying power.

    This simply means you are able to purchase 4 times the number of shares as the broker is loaning you 4 times the value of your account.
  4. If you are flagged as a PDT (Pattern Day Trader) and you have more than $25000 equity in your account, yes you would have a 4:1 margin buying power. You may trade up to $100,000 worth of equities intraday.

    But note that if you hold position overnight, you will reduce your available buying power to day trade. For example: if you have $25000 in your account, and you use your buying power to buy 1000 shares of stock XYZ at $50 a share. It costs you $50,000 (ignoring commission for now). If you hold it overnight, the next day you don't have any more buying power. Because you can only have 2:1 buying power for buying stocks and holding overnight. The next day you sell all your stocks let's say at $50 a share - just breaking even. For the rest of that day, you only have $50000 buying power, not $100000, until the following day.

    Only your unused, cash portion of your equity would be given a 4:1 buying power intraday.
  5. StevieP


    Thank you all for taking the time to respond.
  6. StevieP


    In this scenario would I be able to trade $100,000 over and over again that day, or once all the trades for the day added up to $100,000 would I have to quit?

    Thanks again.
  7. GG1972


    in that case you have $100k to buy (or short) --when you sell lets assume $50k you can initiate a new position for upto $50k --rinse and repeat --your broker should have some sort of tab or something where you can check available buying power etc..

    Other thing you might want to note is buying power is calculated only once (overnight) --so whatever your DTBP (daytrading buying power) is for that day will not change during the day no matter if you liquidate positions held overnight.

    I d say focus on trading and have unlimited buying power :) in a few years

    If you go over your DTBP then you incur whats called a intraday margin call and depending on your broker/stocks being held and their movement your broekr can force you to liquidate yr position
  8. Buying power = the total maximum $ amount of all OPEN trades.

    You can buy and sell to your hearts content all day long. Close one trade, open another. It could add up to millions on a 25k account depending how active you are.

    If your open total trade $ amount becomes higher than available BP (losses?) you will get margin calls and / or closed positions.
  9. StevieP


    OK, thanks. I read something that led me to believe that the buying power was the total for all trades for the day and I thought that didn't make much sense. So in reality you can trade an unlimited dollar amount as long as you don't go higher than your buying power at any given moment.

    Thanks again for the help.
  10. That's right you can buy and sell over and over and over again within your DTBP in any given day. But in reality... unless you are very, very, very good and you trade every minute movement of a given stock/market, you would typically only do X amount of dollar volume.

    Your trading platform is programmed to not let you initiate position that is over your DTBP. For example, if you have $100,000 DTBP and GS is now at $120. You want to short 1000 shares of GS ($120 x 1000 = $120,000). No. Can't do. Your order will be rejected. You can short 800 shares of it. ($120 x 800 = $96000). But sometimes, you may get caught in a short squeeze (like last Thursday). GS went to $140. Now you face a margin call with your short position. ($140 x 800 = $112,000 which is over your DTBP).

    Usually getting intraday margin call is not that likely. As long as you close out your position before end of day you will be all right.

    Leverage is a double-edge sword. Use it wisely! You can get rich OR GO BROKE 4 times faster.
    #10     Apr 12, 2009