IRA "day-trading" to be disallowed???

A

amg

Guest
any truth to this:

http://finance.messages.yahoo.com/bbs?.mm=FN&action=m&board=7081280&tid=sch&sid=7081280&mid=52511 Excerpt:
(writer of post) Speaking with a broker at Etrade the other day about some bonds, I casually mentioned my IRA and that I frequently daytrade the account. He said, “Well, that’ll soon change. Won’t be able to do that anymore.” When asked exactly what he meant, he said that more daytrading rules/restrictions are coming down from NYSE and NASDAQ, probably by late October. Currently, you can trade funds in an IRA over and over – 100 times a week if you want – as they are immediately available to trade after a sale. With the new rules as proposed, those funds will be “unavailable” for three business days! For many, this will mean making at most 1-2 trades a week from an IRA, and that assumes that the right time to buy hasn’t slipped away while the funds were unavailable.
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Anyone hear about this one way or the other?

Needless to say, "investor outrage" is warranted, particularly as the account managers themselves will, no doubt, not be subject to the same rules.

amg
 
I'm pretty sure you're mistaken. We had Steve Sanders VP of IB and their head compliance guy on for a chat. We talked about IRAs and the daytrading rule in the chat.

http://www.elitetrader.com/ch/transcripts/ib_chat.cfm

Currently, you can trade funds in an IRA over and over – 100 times a week if you want – as they are immediately available to trade after a sale.

As far as I know, IRAs are not allowed to margin. They're cash accounts. Which means you can trade as often as you like in them, with any cleared cash. But you do have to wait the 3 days for a previous transaction to clear.

I'm not sure what eTrade has done in the past... (offer margin in an IRA?). I talked with Steve after our chat, and I'm pretty sure what I mentioned above is how IB has always interpreted the rule, and how it should be interpreted... you can trade as often as you like if you've got cleared cash.

André
 
Here where it gets confusing. Yes if you had a $1,000 in your IRA you could trade 100 times a week --- if you traded $10 a shot. But you have to wait 3 days for each sale to clear before you can use that cash again.

Even if you have $25K in your account, you can't daytrade in an IRA because that would be borrowing money for the leverage and you can't borrow money from a broker in an IRA.

Even if you traded on a strictly cash basis, you really can't daytrade effectively in an IRA because the money really isn't available for 3 days after each stock sale even though with sweep style accounts the sale seems to get credited to your account instantly.

Its OK to trade futures in an IRA because you aren't margining your purchases with borrowed money. The deposit in a futures account a really a performance bond (although its erroneously called margin most of the time).


I don't know the status of Single Stock futures in an IRA.
 
Yes, of course there is no margin in IRAs...that is not the issue. Similarly, if you use straight sell, without ROLL-OVER, you already have to wait the 3 days and that is not new.

The way I read that comment (which I DIDN'T WRITE) was there was an implication that one may not be able to roll-over a fund.

Mind you, it's beginning to sound like garbled hear-say and garbled interpretation by the original writers.

I'll just "wait and see" if there is any more chatter on this as time progresses.

Thanks for the replies!!

amg
:cool:
 
I think what we are seeing here is either a customer who didn't understand what they were told or an etrade customer service rep who got their rules mixed up.

My guess is we're talking about the freeride rule and not daytrading rules. You have to be able to fully pay for a trade in an IRA.

For example:

Let's say you buy $10,000 in stock. If you don't have $10,000 in the money market before you place the trade you will need to deliver $10,000 on settlement, T+3. If you sell that stock that you bought without the cash or delivering the cash, then you created a freeride violation for which the penalty is a "cash up front" restriction for 90 days. After 3 such violations, your account will have a permanent "cash up front" restriction.

Regardless, if have the cash in the money market you can trade it as often as you like providing you sell the same or another stock prior to placing another buy order.

mmf - $10,000
buy $10,000
mmf - $0
sell $10,000
mmf - $10,000
buy $10,000
mmf - $0

There are no restriction on how many times you trade as long as you have the cash or are able to deliver the funds upon settlement.
 
Who says there are not restrictions? You don't get the buying power back after the sale, you have to wait for clearing , 3 days later. That's how the rule is applied at IB.
 
Quote from Durango Kid:

I think what we are seeing here is either a customer who didn't understand what they were told or an etrade customer service rep who got their rules mixed up.

My guess is we're talking about the freeride rule and not daytrading rules. You have to be able to fully pay for a trade in an IRA.

For example:

Let's say you buy $10,000 in stock. If you don't have $10,000 in the money market before you place the trade you will need to deliver $10,000 on settlement, T+3. If you sell that stock that you bought without the cash or delivering the cash, then you created a freeride violation for which the penalty is a "cash up front" restriction for 90 days. After 3 such violations, your account will have a permanent "cash up front" restriction.

Regardless, if have the cash in the money market you can trade it as often as you like providing you sell the same or another stock prior to placing another buy order.

mmf - $10,000
buy $10,000
mmf - $0
sell $10,000
mmf - $10,000
buy $10,000
mmf - $0

There are no restriction on how many times you trade as long as you have the cash or are able to deliver the funds upon settlement.
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i think it goes like this:
mmf - $10,000
buy $10,000
mmf - $0
sell $10,000
wait 3 days as cash is not freed up for 3 days
mmf - $10,000
buy $10,000
mmf - $0
 
Quote from Durango Kid:


There are no restriction on how many times you trade as long as you have the cash or are able to deliver the funds upon settlement.
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Not true. If you have $10K in a cash account, buy $10K in stock, then sell that stock, you will be unable to buy another $10K in stock for 3 business days.

This is the interpretation of IB.

OldTrader
 
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