I don't know how TD Waterhouse replenished the buying power, my father and I were speaking with different broker and he's the one who called TDW. IB does as you say, and requires that you have 25k+ to be a PDT. They are unique, though, in that they're the only direct access broker with this option from what I've seen so far and of course the pricing is hard to beat.
An explanation of how cash accounts in general interact with day trading is http://www.federalreserve.gov/BoardDocs/LegalInt/MarginRequirements/2003/20030512/.
my knowledge has fogged a bit cuz I don't deal w/ this much anymore, but here's hopefully an understandable explanation: To put in simple terms, w/in a cash account, all purchases must be paid for before sold. So if your account was flat, zero balance and you purchased a security then you're expected to deposit funds into your a/c by settlement date + 2 grace days prior to a first extention being filed on your behalf. if you chose to sell this stock on the same day you purchased it you'd fear a 90 day restriction cuz you sold the stock prior to fully paying for it, right? Wrong. As long as you pay for your purchase by settlement date you are okay cuz your a/c will have the funds for the purchase by the time the sell settles. say your long x on monday (already settled and paid for) and you sell on tuesday. The sale settles on thursday. tuesday through wednesday your a/c has a credit balance from the sale proceeds. you can purchase a security on tuesday using this credit balance b/c by the time the purchase settles on thursday your credit balance will be a cash balance from the settling of the sell trade that occurs on the same day. Simple rule of thumb to remember, you can't sell in a cash a/c what you have not paid for....exception as explained above, if your purchase is made using unsettled funds from a previous sale, you must wait for the previous sale to settle, thus paying in full your purchase before you can sell. then there's the good faith violation which i can't remember. 3 good faith's in a 12 month rolling period is a 90 restriction. Again my memory is fuzzy so my example above might cause a good faith violation. Maybe a margin clerk can help me out on clearity. A trade can always be entered for next day or same day cash settlement. I'm guessing most online firms require a phone call to the desk to get it entered. This of course shortens turn around time, but can also affect the execution price. A same day or next day settlement trade isn't reflected in the book if placed as a limit and a specialist or mkt mkr can take up to 10 pennies on the trade to get the oda done, per nfsc atleast...don't know if exchange rule.
Domnic, Thanks for your comment. Most of what you've said is true, but at the end of the day, it's up to your broker and their policy on how they let you trade with the "unsettled" cash. I liked my CyberTrader account, but if you have a cash account with them, you can NOT trade until 3 days after you sell your positions. But with IB's Margin IRA account, you have all the benefits of a margin account minus the leverage.
I have just moved my accounts from Schwab to IB and apparently lost a great benefit. At Schwab, which uses StreetSmart Pro trading software (powered by CyberTrader), they let me use the unsettled proceeds from a sale on the SAME day with the restriction that I can't sell the stock before settlement occurs (3 business days later). All this is done in cash accounts. At IB, there's no such latitude with cash accounts whatsoever - I have to wait 3 (or 4) business days for settlement to use the cash proceeds. Another option is to convert the accounts to margin accounts. The margin interest is charged right away on buys but as far as I know, you don't get paid interest on your money before settlement occurs on a sale, which in my humble opinion is unfair (why not make it symmetrical?). I clearly prefer using cash accounts and with an IRA account, margin is not even an option. Don.
I thought this was incorrect. I thought IB introduced a new type of cash account that gets around the T + 3 deal (maybe about a year ago). Maybe I am mistaken.
I'd be very happy to stand corrected on this. What I stated above is what I learned from the customer service rep over their rather-responsive online chat. Don.
Yes, what I am remembering is IB's "IRA Margin" account which lets you daytrade in an IRA which is a cash account. This has already been detailed in this thread. Sorry for the rehash. Although it does seem weird to me that you could daytrade in your IRA cash account but not a regular cash account. Surely there must be a way to do that at IB? As for this: are you sure about that? Or is this speculation?
The same IB service rep that told me about having to wait for settlement in a cash account, also answered my question positively about the interest being charged right away (as opposed to starting to do so on settlement day) in a margin account. Again, I would be very happy to stand corrected. I agree that it'd be weird to be able to have T+0 for an IRA account but not for a regular cash account.
I guess the question then becomes does IB start giving you interest on a sale immediately (before T + 3), even though you can't use those proceeds until later. I would guess the answer is yes - did you ask this question?