New Daytrading rule in September 01'

I think in the end those who can't/won't put up $25k will end up daytrading the E-mini S&P & Nasdaq 100 futures. I know most futures brokers require between $2k-$5k to open an acct and my brokers regular margin on a e-mini S&P is $5,390 and daytrading margin is 1/5 or $1078. Then in December come's along SSF (Single Stock Fuutres) which IF successful could be another good vehicle for low-funded accts.

Also futures are regulated by the CFTC not the SEC so you don't have to worry about them butting in, but SSF will be governed by both the CFTC and the SEC.

Jay
 
I believe this rule was made to help daytraders by giving them 4:1 margin. But this hurts daytraders who are starting to learn by opening a small 2-5k account. I started daytrading with 3k to learn how to day trade. Because of this rule, new people will now need 25k+ to start learning which would not be a good idea. Else, trade with a cash account and not be able to short stocks.

Good for daytraders with accounts > 25k
Bad for new daytraders and daytraders with accounts < 25k
 
Thanks for the replies guys. Sounds like those of us with accounts under $25k better get night jobs...he he. I'm almost there now and should be fine by Sept. but I'm still curious what happens if you dip below $25k.

If you ask me, I think this is a pretty lame rule! I can only think of a few times where I would even want 4 to 1 margin. It would be very nice occasionally (surprise rate cuts, etc.) but for the most part it's just too much risk. You'd have to keep very tight stops to keep your 'R multiples' under control. I think what they're going to find is that inexperienced traders are going to abuse the 4 to 1 margin rule and create even more problems than before.

IB sure is going to lose a lot of business. I think a large portion of their accounts are smaller because there is no where else to go that doesn't eat up your portfolio in commissions. It will be interesting to see how it all pans out.
 
Originally posted by tiki
· If you have a day trading call that has not yet been met, your account is restricted to 2-to-1 Day Trading Buying Power based upon your total trading commitment until the call is covered. Also, the call for that day is not calculated based on Time & Tick. That means you would be responsible for 50% of all your entry positions added together.
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This is a point that has confused me. Does this mean that the margin is calculated on all of your positions added together, even if you only held one at a time? For example, if I trade JNPR 30 times in one day, will I need margin to cover as if I bought all of the positions at the same time ($30 X 1000 (or however many shares I buy) X 30 trades = $900,000!?!?). I would need a quarter million to meet the 25% margin.

Also, isn't this the way cash accounts are treated? So if you don't qualify for the margin account, or dip below $25k, would each position for the entire day count toward the cash amount, because the trade doesn't actually settle until 3 days later? I have always heard that this was a limitation for people trading cash only accounts, but since I've always used margin I don't know how its treated. Anyone else know?

I agree that there will be a move to the futures for many traders. Much less hassle and much better margin. I still can't believe this rule ever saw the light of day, and I get mad again everytime I read it. I have to keep asking myself if I really live in America.

Kirk
 
"I still can't believe this rule ever saw the light of day, and I get mad again everytime I read it. I have to keep asking myself if I really live in America. "


Yeah tell me about it! I've been loking out my window to see if there are any tanks rolling down the street :)


I'm just ticked off about this- as a new trader ready to start trading next month I'm just SCREWED- I've been papertrading and studying daytrading for almost TWO YEARS now- and what do can I do with it? NOTHING- unless I want to come up with $25,000 bucks outta nowhere- and to me thats a chunk- one that I don't feel confortable leaving in a brokerage account w shaky/no insurance.

My question now is: IS THIS GOING THROUGH FOR SURE??

I'm finding all kinds of notices about this rule from way back in February 2000- I can't believe I didnt hear about this for over a YEAR.. woulda saved me some money in training I couldnt use.. or at least given me a chance to write the SEC protesting it.

Man I am just frazzled over this..

 

What I am trying to understand is: how is this rule going to be implemented and enforced? It seems to me such rule was already in application, the SEC just changed the definition of a daytrader and modified the equity re-quirements for daytrading account. Someone suggested you may be able to daytrade in a cash account. As far as I know there is a NYSE rule that says you can't daytrade in a cash account. I swingtrade in a small account but I tend to close positions at the end of the day if I don't have some kind of cushion for the next day or the trend is extended. Also I have very tight stops (1/2-1 point max.)so if the trade doesn't pan out I am often stopped out before the next session. I will thus be considered as a pattern daytrader. Now I think it is possible this rule is not going to change much afterall for swingtraders. Here is what your broker may do NOW when you have a day trading margin call:

A "day trade" is when you open a new position and then close it during
the same trading day. But merely executing a day trade does not
necessarily create a call. Day trading margin rules are applied only
to accounts that exhibit a pattern of day trading, which is defined as
making three day trades within any 12-month period.

Once an account has been identified as a day trading account, a day
trading call is created if the opening transaction of any subsequent
day trade exceeds the account's day trading buying power.

A day trading margin call must be met with a deposit of funds, or of
securities. A day trading call is due within five days. Liquidating securities will not satisfy a day trading call.

When you do not satisfy a day trading margin call with a deposit to
your account within five days, your account will be charged with a
"strike", indicating that you did not meet the call. If you
accumulate three strikes within a 12-month period your margin trading
privileges will be suspended for 90 days.

If your margin trading privileges are suspended you will either be
restricted to trading with only the cash balance in your account, or,
if your account has a debit balance, restricted to closing
transactions only.


So it is my understanding that if you are a swingtrader who happens to make more than 3 daytrades in a 5 day period, you would have a margin call. If not met, that would be 1 strike.You do that 3 times and you will be restricted to your cash and you can still do what you want with your cash.
I hope I am right. As far as I am concerned I rarely use margin because I rarely open several positions at the same time and if I do I reduce size. I also believe some days it 's better not to trade at all and in a week there is only a few opportunities with low risk entry point. But that's just the way I (try to) trade.

 
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