Min Acct. Rule- The other BIG concern!

Fogcat,

Just a quick point of clarification: people with less than 25k will not be out of the game. They will just not be allowed to short or go on margin. They can still afford to make a living daytrading the lower priced shares (e.g. JDSU) or hold small positions in the higher priced shares for a few hours as a directional play. To do so, they must ensure that they are in a cash account with a broker who updates buying power in real time. After the new rule, sophisticated direct access brokers will probably ensure that their Cash Only accounts have real-time updating of buying power (just like their margin accounts currently do), so they can keep their smaller customers busy daytrading, thereby maintaining their commission revenue stream. Essentially, the best brokers will probably end up underwriting the trades of its cash account customers, thereby not requiring a cash account customer to wait the mandatory 3 days before his funds are refreshed.

Also, direct access brokers that don't even offer cash only accounts will probably end up creating them, in order to capture the enthusiastic market of daytraders affected by this stalinist regulatory change.

Fogcat, stick with it, go long on significant support levels when the market is tanking and/or trade the lower priced issues. You can still do well in a cash account this way.
 
I am pretty surprised that traders with accounts under 25K have so much market power. But i guess you guys know best, i only have a small account.

"Let's consider how much rookie money it may take of the table"

"With the slew of trading account(s) out there under the 25k, geese, this could cause havoc" (i really like this one!)

"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"

"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."

Boy it sure would take a lot of "newbies" to move CSCO,DELL,SUNW,DIS,MO,NVDA, etc Those newbies must be running all over the market with their 100 lot orders!

But if you say so, i'm convinced! After all, the size of your account has endowed you with superior wisdom.

I am really worried for you guys! Since all of your profits come from less experienced traders; at the rate you guys accumulate wealth and wipe out those newbies -- not only are the existing newbie traders going out of the market, but the source of all continued profits (new traders) is going to disappear! Whatever are you going to do?

regards/greg
 

I like the new rules. Primarily because I like the new 4:1 margin ratio. I'm looking forward to it.

People who want to trade will trade. They will find a way to trade and follow the rules.

This is America. You want to be a trader? You will find a way.

I'm not concerned with liquidity by these new rules. The liquidity is driven by institutions and market makers. Daytraders can push the prices sometimes but the market makers have the ultimate power to snap prices back in line.

It doesn't really matter who is on the other side of the trade. To be successful you have to follow the trend.

At first I applauded the move towards decimalization. But I'm amazed at how small the spreads have become. However, the stock movements have been smoother and I think that's better because you don't get whipped out so hard so often.
 
gh1,

Your last post was excellent and humorous. Moreover you made a salient point: I agree wholeheartedly that newbies trading in 100 lots cannot and do not move CSCO and DELL.

However, the reduction of newbies trading such stocks will inevitably remove a degree of liquidity for such stocks from the ISLD book, which is the preferred route for those daytraders who prefer Nasdaq over NYSE. Under conditions of reduced ISLD liquidity, the implication is that Nasdaq traders will find it more difficult to get their desired entry and exit points. If liquidity-related slippage increases significantly, profitability will diminish significantly.

Having made the above point, there may however be beneficial liquidity effects from the introduction of SuperSOES, which may mitigate the negative effects of a removal of liquidity from the ISLD book.

 
I'm sorry to post here, I guess it was intended for those under 25k, but I wanted to reply to WET. I did start with 6k. I blew it all. I was unable to trade with that little. I then was given [daddy's] money, and lost half of that before I was able to recover. I was able to recover mainly by longer term trades where I looked for 10-25 pts (mainly on lockup expirations before that became a popular strategy to short them). I don't think most people could daytrade with under 15k in their account. (I'm sure there are hundreds of exceptions, so don't quote them, but there are tens of thousands more to prove the rule). The 15-25k area is kinda gray. I don't like what the SEC did to you guys. It is wrong. They are trying control too much. At the same time, all they really did is change the margin rules. They didn't ban daytrading. If you have 20k in your account. You can flip nickles all day til you turn purple, and they couldn't care less as long as you don't use margin. Too many idiots now owe too much b/c they didn't know what they were doing last year with margin. A bigger account doesn't make you any more experienced. (I know doctors and lawyers who have blown million dollar accounts trying to daytrade). What the SEC is trying to say is that those who have that much capital are probably in a position to loose some and not have it adversely affect their lifestyle. The SEC also thinks that those people can pay back losses incurred on margin more easilly and not leave brokerages on the hook.
I am really sorry this happened to the smaller guys, but I think that the gains for the bigger traders are extreme. These margin rules are downright awsome for us. I won't have to dump positions at the close b/c I want the buying power the next day. No reg T is great. 4:1 margin is unreal.
The assumption that we all beat up on the newbies and that's where are earnings come from is incorrect. I know a ton of profitable newbies, or those with less than the 25k required. I don't think these new rules will affect liquidity at all. The only difference will be that I won't keep getting 29 share island fills and have to pay tickets on them. At least most of the names I trade no one has heard of, and there is no liquidity.
 
Greg,

Surely you must be kidding. You think were only talking about 100 share lots? You do not think you benifit by the less experienced traders (assuming you have the experience your ego suggests). There are alot more accounts in the 15-20 k range than perhaps u may imagine, or maybe I am mistaken. However, 15 k at 2 to 1,x 1000's of traders surely must make a difference in liquidity. I had similar concerns about the changes in decimals, they proved to be accurate and hit me hard intitally in the pocket book.

Now, I am sure by your post that you are convienced this will not affect order flow, island, entry and exits, volume, range, etc. That is great to hear!

Your post has a few valid claims, BUT you miss the mark on others.However the proof is in the pudding, so we will see what happens when the rule goes into effect. If you are correct, it will not matter so I guess we have nothing to worry about.The newer money out there and small accounts
PER Greg that come off the table wont make a difference.

So, thank you for your reply, I was only looking to explore this possibility thatI have heard little conversation on.
Not to only inger that is only rookie money that we are after, not the case at all. Please read again my original post.

So with that, I will leave the big decisions to the big traders in this world and go on playing with my small 1-2000 share trades( and yes this is small) , but also how I make my living),knowing that the right to passage that brought me here, and the thousands I spent on the learning curve, the dicipline to stay with it, will not make a difference as per greg, things will not change and all my earlier dumb money did not benifit anyone.I am glad to know this, here I thought that someone actually took it. Maybe I can get it back? Oh and yes, I am aware that the MM ativity is prime factor here ,and so i gueess per greg they got it all. And it was always them, not an experienced trader sucking up my shares on island in a squeeze play. Glad to now it wasnt one of you, feel much better about things now.I am also relieved to know that we have nothing else to worry about.

Good Trading all,

Jake

 
P2:

First, I don't daytrade (well, much). I swingtrade. And the rule effects me greatly. But to be honest, I don't think it matters whether we're talking about swing or daytrading. Since my commissions are so low at IB, having less than 25K certainly doesn't mean that I get eaten up by commissions. In fact, commission cost is almost small enough to ignore. Since commission cost is the only real reason to say that a sub 25K trader is at a disadvantage, IB nullifies that disadvantage. To argue the point further is to claim that people with over 25K are inherently better traders. And that's straighforward arrogance and bull.

I don't look for 10-25 point moves. I do fine with far smaller moves, either when daytrading or when swingtrading. My goal is to increase my trading portfolio by a certain percentage a year, not to make X amount of dollars to live off. But I'm not trading for a living. Now, if the claim was "you can't trade FOR A LIVING with less than 25K", I'd be the first to agree. But "profitable trading" to me is not defined by doing it for a living (quite against the arrogant rantings of the ever so humble Hitman). It means being UP, and having a positive equity curve over time. Providing that you have small commissions, this is more than possible with less than 25K given knowledge of chart reading, some good setups, and sound money management.

This is what I object to -- there are WAY too many arrogant traders on ET that seem to think that people with under 25K are "morons" that are preyed upon by those with more than 25K. I simply fail to see where account size has anything to do with one's trading acumen. If you started with 10K and now you have 500K, sure, that indicates acumen. If you started with 500K and now you have 10K, that indicates lack of acument. But to just point to an account size without these further specifics and say "those with more than X are smart, those with less are bait" is the height of arrogance.

I have less than 25K. My equity curve is positive. So clearly over time I have not served as "prey" or "newbie bait" for any of you. And if I have, then I will gladly wear the moniker all the way to the bank.

On the SEC.

First, you can't intraday trade in a cash account, far as I know. I know you can't at IB. So the rule does more than affect those with less than 25K using margin accounts, or force them into cash accounts. It pushes under 25K traders out of the game, or at least severely limits their opportunity.

Second, I could care less if most traders with under 25K lose their money. This is capitalism, and trading is a risky business. It is not the govt's job to protect me from myself, and, in essense, to allow the rich to get richer and the poor to get poorer. You admit that you were "given" 20K. If you have more in your account than me at that moment, does that make you a better trader? No. As well, in a free capitalistic society, I fail to see where trading is a "privilege" that one participates in when they are sufficiently capitalized by the govt's standards. Lots of lower capitalized people blow their money in Las Vegas. Personaly, I dislike gambling, and I think it's a shame. But that doesn't mean I'm going to support legislation where you need over 25K in your pocket to enter the doors of the Sahara Casino.

Lastly, sure the regulation is great for you and for everyone else with over 25K. But that's for the simple reason that you benefit from it. At the risk of being hyperbolic, slavery was a great law of the land for slaveowners. But it sucked for slaves, and the fact that it was a great beneficial state of affairs for slaveowners didn't make it right, or even something that should have been supported.

The SEC rule -- in principle --is unethical and anti-capitalistic. The 4:1 margin really is, in short, a bribe. It's hard to describe it any other way.

Wet


 
Candletrader,

From what I have understood in talking with those knowledgable about the regulatory and clearing mechanics, the way DAT brokers have been able to give instant credit to buying power for closed positions (rather than T3 settling) is by having the trades coded as margin trades. Thus the new rule would essentially take away the ability for under 25k accounts to go long on a daytrading basis as well as short-again I have heard this from folks who have worked as trade desk principals of DAT firms.

I was going to post this in response to some earlier posts, then I saw yours referencing the possiblilty that sohisticated brokers will figure out a way for cash accounts to have "instant clearing". It would be great to know once and for all if this will or will not be the case......
 
praetorian,

Very well put...

But why do you (and a few others) claim one can't daytrade with success a 15K account?

15K will buy 200 shares of a $70 stock, and that's on the expensive side. You could flip these stocks all day long racking up nice gains and never need more buying power.

Why do you say that under these conditions success is improbable?

tradeRX
 
-----------------
But why do you (and a few others) claim one can't daytrade with success a 15K account?

15K will buy 200 shares of a $70 stock, and that's on the expensive side. You could flip these stocks all day long racking up nice gains and never need more buying power.

Why do you say that under these conditions success is improbable?
-----------------

Be honest. Do 99% of the daytraders with a 15K account rack up nice gains from the get-go? Or do they encounter losses as they learn to daytrade?

That's the issue. Can 15K withstand the losses?

MGB

 
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