Min Acct. Rule- The other BIG concern!

S

Scalper Jake

Ok Traders,

Here is what quite possibly may be the most important topic of our near future, in my opinion! I want to hear your thoughts on how the new minium account rule will, or will not affect our day trading future.

Okay, let me break down my immediate concerns, then I would really like to hear from you on this important topic. Now, I may not be 100% on the new rule, so chime in a correct me where I am wrong.

Firstly, how many traders out there will be taken out of the game do to the new rule? Let us hear from you (the ones that will).Now for many of us here, probally not a big problem, but is it? Let's consider how much rookie money it may take of the table? Ok, this sounds bad but will this leave just a bundle of above average trader(s)fighting for profits in the equites markets. I mean lets face it, we rely on the fact that the better our skills become, we are able to take advantage of profit opportunuties from less experienced traders. With the slew of trading account(s) out there under the 25k, geese, this could cause havoc! Last thing I want to do is battle ONLY experienced traders like myself! Now, I did hear that they will be able to play long without margin (meaning long only, not short). If so maybe this opens up other opportunities if they are looking only one way? It's a thought anyways.

Now, don't get ticked at me. I do not mean at all to infer if you are trading a account less than 25 k you lack experience. Not the case at all. Just this, likly the rookies will dry up, and the more experinced will find a way to fund that account. Catch my drift?

Speaking of drying up, my other scary thought.With volume already getting thinner, and range(s) smaller, now what happens? Does it go lower, with an even tighter range. Uggh!

Finally, the good traders adapted to the changes in the last year, so I presume we will adapt to this as well. Or am I blowing this all out of proporation? I really hope so. Look, I don't mind rolling with the punches, but I hate to see a tuff game get even tuffer. I work hard enough as it is. We'll there it is on the table. My largest fear! I knew the bull market would end, I knew volume would get thinner,skills would need to be improved. But this? My oh my oh my.To take the easy prey out of the game. Where does that leave things? Okay that's it. Blast me if I am out of line but its all on the table. Let's talk about it.

*I would like to add one thing after the fact here as my original comments seem to have been confused. It is a right to passage that newer trader usually must pay, as I did, in your pursuit to day trading. And my original money and order flow, did benifit someone. And it wasnt always market makers sucking up my shares on island in a squeeze play.

Good trading!

Jake
p.s. is it possible to get spell check here, lol.
 
Scalper Jake,

My concerns are about liquidity.

I generally trade stocks with average daily volume of over 1,000,000 shares, but not the extreme high volume stocks like DELL, CSCO, MSFT, etc. I prefer to be able to trade a stock that is somewhat readable for the short term with enough volume so that it is liquid, but not so much that the price won't move far very fast. Most of my trades only last about 7 minutes, though others, such as trending plays may last for most of the day.

When I place an order to trade 1,000 shares, most often, the order does NOT trade in one segment of 1,000 shares, but rather in multiple smaller segments such as 500, 300 and 200 or something like that. I primarily use REDI, ARCA and ISLD. (ISLD orders are most often in many pieces.)

My concern is that perhaps the traders on the opposite side of my orders are often from those with less than 25K, and they may disappear from the market because of the new 25K rule. I assume this since most often it appears to take several other smaller traders orders to match my 1,000 share order. I hope I'm wrong, but I see this as a disadvantage to the more professional daytraders if liquidity dries up.

If the statistics are true that about 90% of daytraders fail, and a large portion of those 90% disappear from the market because of the 25K rule, then many of us may be affected adversely unless you want to scalp for penneys on the high volume stocks, accept poorer entry price, or hold for longer time periods. I don't think that general stock price fluctuations will change, but I suspect that entry and exit will be more difficult if liquitidy dries up.

I guess we'll find out soon, but I hope I'm wrong.

TimWin

 
TimWin and ScalperJake,

I share your sentiments. But out of every shift in market structure, new opportunities are bred.

I feel that we (the experienced traders) will be trading against each other on the short-side, reducing our respective probabilities of consistent short-side profits.

But the happy side to this sad tale of regulatory interference is as follows:
Human nature is such that people who love trading (but who have less than $25k and who therefore will not be allowed to short) will not quit trading. What does this imply? It is obvious! Undercapitalised traders will gravitate to any long-side opportunity that presents itself in this bear market. Stripped of the short-side, the undercapitalised traders will be clutching at any long-side straw, no matter how improbable a positive trade outcome.

Herein lies our opportunity! The odds of successfully exploiting irrationality in high volume long-side trading windows will be increased significantly. Paradoxically, it may pay the experienced to specialise in shorting long-side irrationality, in order to extract profits from the less experienced.

Sounds rather Machievellian, I know; but all that counts in trading is the bottom line.
 
I really don't mind the new rules at all. The changes in margin and Reg T are awsome. It sux if you are under 25k, but I doubt that most people under that ammount can trade profitably anyway. The commission will eat you up. If you do want to trade, try options or e mini's.
Liquidity will drop off a bit. But it won't affect anything. someone with 15k in his account will only be able to take 1k of a 30 dollar stock anyway. That's nothing at all in liquidity terms. Besides, most of those people try and play the same 50 stocks anyway. There will always be liquidity in CIEN. I'd much prefer the ability to take home 10-30k of dis, catch that 20c gap, and still have all my buying power to get short.
 
P2,

Didn't YOU start trading with less than 25K? I may have a faulty memory. Here's how I remember it.

You started with 6K, blew it all.

You convinced your father to give you 20K to trade with.

And you used that 20K to get to your current account size.

If I'm remembering right, then I wonder why you keep running this "you can't trade with less than 25K line". I guess your dad should have said "Hey, P2, I WOULD have given you that 20K, but turns out you can't trade profitably with less than 25K". What would you have said then?

By the way, I have less than 25K, my equity curve is POSITIVE -- has been for a while -- and I don't get "eaten up by commissions". I use IB.

Wet

P.S. To everyone out that just assumes that when they make money, it is always off some moron with a lesser account,
let me remind you that this assumption would only hold IF (1) everyone was trading the same exact setups and concepts and (2) everyone reached their current account sizes through actual trading prowess. (1) is not true by any means and neither is (2).
 
Interesting point that while trading on the short side may drop off a bit, we'll probably pick up some "irrational exuberance" (ahem) on the long side. I like that.

Anyway, silly to worry about what is (currently) out of our control. When the dust settles late this year or early next, we'll all see some adjustments made, some benefits, and some losses by the new rules.
 
Hey Guys,

Nice comment(s)! Right along the lines of my concens. Lets's try to keep this one on subject if possible, hopefully hear from alot more of you.This is is an important topic. The concern I would like to continue to investigate on this string is: How does this change the landscape of trading if all these newer trader, aka " the rookies" go to the futures, or simply go away? How much more competetive do our jobs really become? Does the futures market(s) landscape change as they migrate over there? How does that affect the equites traders? How much will volume and liquidity dry up? Ok guys, enquiring minds want to know!. We have some great "minds" in here, let's hear what the rest of you think!

Jake
 
I have been a profitable trader. I started with a VERY small amount of risk capital. Let's remeber that RIAK capital is what you are prepared to loose if a worst case happens. The worst case has not happened (butr the current choppiness has caused commissions to eat too much of my profit.) The new rule IS forcing me out since I am a NEW trader (versus experienced if experienced means the amount of capital you can afford at any given time). I have much experience at TA. Flamers please do not respond since the question was asked of those affected by the ruling. I did believe that the market was supposed to be a free market system ( I do not believe that everyone who has the required 25K or more believes the following) however; I now know that the SEC has made this a Facist market system (Facist means rule or control by an elite with elite meaning in this case the amount of risk capital one has available). This is unfortunate. I will be forced to "take my toys" and play elsewhere untill I have enough capital to play there again if I am so inclined by then. Please do not think I blame anyone in particular but I do feel that this ruling is entirely innappropriate.
 
As someone who started trading with just 8,000 dollars, i am very disappointed that the SEC approved this new rule. While this rule wont affect me now, i was thinking about what i would do if my account were under the 25k limit. Three choices seem obvious.
  • Borrow the needed money from credit cards or some other source to bring total account equity over 25k. I have two friends that are getting "investors" to back their trading.
  • Join a proprietary firm and get out from under Regulation T altogether.
  • Pool your account with a trusted friend. If you have a buddy who has a 15k account and you have a 15k account, open a joint account requiring both signatures for withdraws and so on. Of course, this would be an accounting hastle and you would really need to have confidence in your buddys trading as well as his honesty.
I really doubt this rule will make any noticeable change in the way the markets trade. For the most part it is institutions acquiring and disposing of positions that move stocks anyway. If you think about it, when was the last time you were trading and you said "That @#$!% daytrader!! he ran my short up buying almost 500 shares and forced me to cover!!". =)

I would like to say one more thing. I think those who are giddy about this new rule should refrain from "putting down" their fellow traders that will be put out of business. Especially those traders that started with less than 25k themselves. Even more so should traders that started with less than 25k of daddys money hold their tongues. When i started trading there were alot of people that told me i would lose my shirt. Everyone became a prophet and decided to forecast my failure for me. Its amazing how people can come up with 1000 reasons why something they know nothing about wont work. It is likely that most traders face similar challenges when aspiring to this profession and they do not need to hear from those within the industry who spread the message "i started with a small account of my daddys money and made it but thats because im special, you cant do it". If anything, those of us who started with small accounts and are profitable traders are proof that trading can be accomplished even if starting with a small amount of risk capital. Lets encourage other traders by sharing our success rather than becoming a prophet of their demise. Just my 1/16ths worth.

-qwik
 
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