Help understanding free riding rules for pattern day traders

M

markekt

Hello everyone. I'm a noob investor exploring swing trading strategies, and was hoping someone could help me understand fund settlement rules for a PDT flagged margin account. The strategy I'm working on would involve opening and closing positions on a single stock perhaps dozens of times a day, and I cant seem to find a good answer on whether I'd be running into any violations regarding settled funds, assuming I maintain my $25K minimum equity requirement at the end of each day. For instance if I have $30k sitting in my account, and I open and close a position worth roughly $5k dozens of times over the course of the day, always closing out by EOD, are there limits on my trading volume with that strategy within that T+3 window?

Thanks
 
There shouldn’t be any limits on round trips, unless you’d end up with a cash account at a broker (instead of basic margin account). Cash accounts are usually setup by request, so by default you should be able to trade as much as you like.
 
With any margin account, you do not have to wait for trades to settle. Stock trades settle in 2 days, but you do not have to be concerned. There should be no limit to the number of times you can day trade within your margin unless your broker has some limit, which would not be typical. CASH accounts require waiting for trades to settle and have no PDT restriction.
 
markekt said:
Hello everyone. I'm a noob investor exploring swing trading strategies, and was hoping someone could help me understand fund settlement rules for a PDT flagged margin account. The strategy I'm working on would involve opening and closing positions on a single stock perhaps dozens of times a day, and I cant seem to find a good answer on whether I'd be running into any violations regarding settled funds, assuming I maintain my $25K minimum equity requirement at the end of each day. For instance if I have $30k sitting in my account, and I open and close a position worth roughly $5k dozens of times over the course of the day, always closing out by EOD, are there limits on my trading volume with that strategy within that T+3 window?

Thanks
More...
You can trade stocks in and out in a single day as many times as you choose so long as each transaction utilizes a separate portion of the cash in a non margin cash only account. For instance, if you buy into XYZ for all $25,000 you are finished for T + 3 days. However,if you buy in and out of XYZ, or any number of different stocks with $500 ten different times a day with ten different portions of $500 increments from your $25,000 ($5,000 total for the day and $20,000 over that trade day and the 3 day settlement period days you are trading new portions of these $500 increments) you will be fine.

In a margin account you can trade in and out of stocks infinity times a day as long as you have over $25,000 equity cash stocks or both in the account. T + 3 days settlement period only applies to non margin cash accounts.

Think of the settlement period like when a check is deposited into your checking account and sits pending for a few days before it moves to your cleared transactions. It is to ensure stocks are properly funded with existing funds that have cleared. You can trade as often as you'd like with a cash account under $25,000 so long as you are trading with untouched portions of cash not in the settlement period of t+ 3 days. PDT is using margin account and essentially trading with an amount over and above the $25,000 balance in your account. As long as your account has an equity balance of $25,000, which can be made up of cash and stock, you are fine. You are automatically classified a PDT as soon as you trade in excess of 3 times in a 5 day rolling period.
 
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