Read an article in Active Trader Magazine, said determination was made that cash accounts can meet SEC Pattern Day Trader Rules since it takes 3 days to settle transaction, therefore borrowed money. Online broker Reps said cash accounts not subjected to this rule. Anyone expierience this situation? Comments please....
Article says Cash Account can be qualifed as daytrader
- Thread starter xtech
- Start date
sure you can be subject in a cash account if the broker lets you trade it that often.i think most brokers have software that limits your trading before that happens.i know in my ib ira cash account it wont let me trade till the trade settles.
I am a broker and our firm already enforces "daytrader type" rules in cash accounts. Basially a cash account is only allowed to use the cash they have at the opening to buy, sell, and then buy again. This means if I have $2000 I can buy $2000 worth of stock then sell it later in the day, and then buy another $2000 worth of stock. If I decide to sell again I get hit with a freeride violation. I think this new interpretation is totally bogus for a number of reasons, but I really don't feel like getting into it. Anyone that understands three day settlement and basic logic will know this intepretation is flawed.
As far as I know, the daytrading rules apply to margin accounts only and daytrading is only allowed in a margin accounts. I haven't read the article in active trader magazine yet.
Another interesting note on the pattern daytrader rule is that the rule applies to the account only, not the trader. For example , if my personal account (account A ) at XYZ broker is now below $25,000 , I cannot be a pattern daytrader anymore in that account . However, if I have authorization to trade a Corp.account(account B-$50,000 margin account) at the same broker XYZ , I could be a pattern day trader in that account(B), even though account A is restricted from day trading. The margin rules for pattern day traders can be confusing and it's best to talk to a qulaified B/D who is familiar with the rules and how they are applied. I find them confusing myself at times. The pattern day trader rules only apply to NASD customer accounts not LLC's.
Gene Weissman
Lieber & Weissman Sec., LLC
gweissman@stocktrade.net
Another interesting note on the pattern daytrader rule is that the rule applies to the account only, not the trader. For example , if my personal account (account A ) at XYZ broker is now below $25,000 , I cannot be a pattern daytrader anymore in that account . However, if I have authorization to trade a Corp.account(account B-$50,000 margin account) at the same broker XYZ , I could be a pattern day trader in that account(B), even though account A is restricted from day trading. The margin rules for pattern day traders can be confusing and it's best to talk to a qulaified B/D who is familiar with the rules and how they are applied. I find them confusing myself at times. The pattern day trader rules only apply to NASD customer accounts not LLC's.
Gene Weissman
Lieber & Weissman Sec., LLC
gweissman@stocktrade.net
Not to take the thread on a tangent, but don't you find it ironic that these rules are pushing people into options, futures, and soon futures on individual stocks?
This is akin to steer people toward crack smoking in order to discourage them to smoke marijuana.
Elvis
Originally posted by ElvisOnMargin
Not to take the thread on a tangent, but don't you find it ironic that these rules are pushing people into options, futures, and soon futures on individual stocks?
This is akin to steer people toward crack smoking in order to discourage them to smoke marijuana.
Elvis
I beleive the rules were made in late 1999 when speculative stocks were soaring. I guess the people that made the rules thought those times would continue.
-triple
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"real eyes see real lies"
Could someone point me to some regulation where it says you can't daytrade in a cash account? I've read Regulation T and don't believe it says this. Nobody in the past has been able to give me a convincing argument as to why daytrading in a cash account is not allowed.
I realize this is how the NYSE and NASDAQ are currently interpreting the rules, but they either didn't always do it this way, or they let brokerages interpret the rules more freely before.
Carl
I realize this is how the NYSE and NASDAQ are currently interpreting the rules, but they either didn't always do it this way, or they let brokerages interpret the rules more freely before.
Carl
The rules came into effect fall 2001, if memory serve: well into the bear market. Regardless, they don't make a lot of sense any way you slice it, as long as there are alternative high-leverage vehicles.
Elvis
Just a few notes to add. Obviously the 2520 rule does not apply to cash accounts as it is a margin trading rule. However, this new interpretation supplied by the NASD (as documented in Active Trader) is a lame attempt at bridging the two issues and perhaps a supporting stance for the brokers.
Most B/D's implement a total commitment on cash accounts (as described previous) so that if a trade is reversed within the settlement period, the funds can still be reclaimed. Note that each subsequent trade is dependent on the prior one in a cash account. This reasoning may not make sense, but that is the guise the SEC and NASD put towards this issue.
Most B/D's implement a total commitment on cash accounts (as described previous) so that if a trade is reversed within the settlement period, the funds can still be reclaimed. Note that each subsequent trade is dependent on the prior one in a cash account. This reasoning may not make sense, but that is the guise the SEC and NASD put towards this issue.