Why brokers are tough to cash accounts ?

Discussion in 'Trading' started by hajimow, Feb 7, 2010.

  1. I have a brokerage link account linked to my 401k with Fidelity which allows me to trade any stocks or options without having margin which is acceptable because it is a 401K account. It does not allow shorting a stock which is also understandable because if a stock which you are short goes up, you might need more cash which you can not desposit in a 401K account. But something that I don't understand is that Fidelity does not allow me to daytrade in my account. Say, I have 50K in my account. If I buy 50K worth of stock and sell it the same day and then buy it again, I can not sell it before the payment settlement day.Usually restrictions are made to protect the trader or the brokerage house and not to irritate them. This rule is more like of irritation. Nothing can go wrong if I constantly buy and sell in my account. I have cut and pasted the rules from Fidelity website which you can read and maybe explain it to me.
    Good Faith Violation Example 1
    A Cash Account with Available to Purchase Securities = $0.00
    On Monday morning, you sell XYZ and net $10,000 in proceeds
    On Monday afternoon, you buy ABC for $10,000
    If you sell ABC before XYZ's settlement date on Thursday, you will incur a good faith violation, as the ABC would not be considered fully paid for prior to the sale

    A Cash Account with Available to Purchase Securities = $10,000
    On Monday morning, you buy XYZ for $10,000 On Monday mid-day, you sell $10,000 worth of XYZ Near market close on Monday, you purchase ABC for $10,000
    At this point, you have not incurred a good faith violation because you have sufficient funds for your XYZ purchase
    If you sell ABC before the settlement date of your purchase, you will incur a good faith violation
  2. spinn


    nobody is going to read all of that; much less answer it. You should kno the answer before trading.
  3. I had the same question. Since it is a cash account, the whole 50K has to settle first. It takes around 3 trading days to settle, so you can either make one 50K trade every 3 or 4 days, or one 12.5K trade each day, I believe.
  4. I am not sure which is less of a torture...reading this thread or watching The Who lip synk the Super Bowl 1/2 time?

    Time to mute the TV and play music!
  5. I modified my post and cut the bones and only left the meat. It is less torture now I believe
  6. You have to wait 3 days before stocks settle. Options take 1 days. If you buy a stock and sell it before the three day period, and use the cash to buy something else, that's a free riding violation.
  7. Thanks but you are just repeating the same rules that do not make sense. I have 50K and I should be able to do 100s of trades a day as long as I sell my previous position before I get into a new position unless my broker is not sure whether he will get his money when I sell my shares :D
  8. Are you that retarded???

    You can ONLY DAY TRADE in a margin account, and retirement accounts are only cash accounts, simple. Unless you are trading in a margin account, the trade settles T + 3.

    You just don't get it do you?
  9. Yes I am retarded How did you know that?
    I know the rule. My point was that it does not make sense and I did not ask you to repeat the rule to me. MR Genius please explain to me what possibly can go wrong If I trade as I described in my post and what is the reason for that rule.
  10. Not in an IRA or 401k bud. Do some research and realize you need a system that holds overnight.
    #10     Feb 7, 2010