Pattern Day Trader Question

D

Doglover

Hi, I'm a bit new to day trading, just have a quick question. I wanted to get some clarification on the FINRA's $25,000 requirement for pattern day trading. I also don't want to use margins to trade as well. Is having $25,000 daily balance and/or a margin account absolutely required to day trade? I understand it takes 3 business days from after selling a stock before the funds are available again in your brokerage account (if not using margin), but what if I only trade 25% of my daily balance maximum, I wouldn't need margin access as the funds will always be available.

I plan on making approx 10 trades a day and Ameritrade support is telling me for day trading I don't need to maintain a $25,000 balance at all if I use a non-margin account (even if I day trade 300 times a month), but wanted to get a second opinion as don't want to be breaking any US law unintentionally.
 
It is required as far as I know.
But maybe some brokers have a system where you can request a non- margin account to skirt that rule
 
Thanks Josef.. Actually, I am re-reading the "Pattern Day Trader" FINRA definition and it also states something similar to that it being a someone that trades the same security more than 4 times in a day within a 5 day period.

So if I'm understanding this correctly, if I actually want to buy and sell in the same day, but only one time (and save on brokerage fees while I'm at it).. So technically, by definition, you can trade even 10 stocks 3 times (which makes 30 trades total) each in the same day, and you wouldn't be classified as a "Pattern Day Trader" correct? I'm not sure if I'm reading this correct, so please correct me if I have this wrong:

"
Summary of the Day-Trading Margin Requirements
The rules adopt the term "pattern day trader," which includes any margin customer that day trades (buys then sells or sells short then buys the same security on the same day) four or more times in five business days, provided the number of day trades are more than six percent of the customer's total trading activity for that same five-day period. Under the rules, a pattern day trader must maintain minimum equity of $25,000 on any day that the customer day trades. The required minimum equity must be in the account prior to any day-trading activities. If the account falls below the $25,000 requirement, the pattern day trader will not be permitted to day trade until the account is restored to the $25,000 minimum equity level.
The rules permit a pattern day trader to trade up to four times the maintenance margin excess in the account as of the close of business of the previous day. If a pattern day trader exceeds the day-trading buying power limitation, the firm will issue a day-trading margin call to the pattern day trader. The pattern day trader will then have, at most, five business days to deposit funds to meet this day-trading margin call. Until the margin call is met, the day-trading account will be restricted to day-trading buying power of only two times maintenance margin excess based on the customer's daily total trading commitment. If the day-trading margin call is not met by the fifth business day, the account will be further restricted to trading only on a cash available basis for 90 days or until the call is met.
In addition, the rules require that any funds used to meet the day-trading minimum equity requirement or to meet any day-trading margin calls remain in the pattern day trader's account for two business days following the close of business on any day when the deposit is required. The rules also prohibit the use of cross-guarantees to meet any of the day-trading margin requirements."

Source From: http://www.finra.org/investors/smartinvesting/advancedinvesting/daytrading/p005906


Am I correct in my assessment that I wouldn't be a Pattern Day Trader regardless?
 
That's not correct. You are limited to three round trips total in any period of five trading days.

any margin customer that day trades (buys then sells or sells short then buys the same security on the same day) four or more times in five business days
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The limit is not three day trades per security, it's three day trades overall. So if you have a margin account and you make four or more day trades during a span of five trading days, you'll be designated a pattern day trader.
 
Doglover said:
Thanks Josef.. Actually, I am re-reading the "Pattern Day Trader" FINRA definition and it also states something similar to that it being a someone that trades the same security more than 4 times in a day within a 5 day period.

So if I'm understanding this correctly, if I actually want to buy and sell in the same day, but only one time (and save on brokerage fees while I'm at it).. So technically, by definition, you can trade even 10 stocks 3 times (which makes 30 trades total) each in the same day, and you wouldn't be classified as a "Pattern Day Trader" correct? I'm not sure if I'm reading this correct, so please correct me if I have this wrong:

"
Summary of the Day-Trading Margin Requirements
The rules adopt the term "pattern day trader," which includes any margin customer that day trades (buys then sells or sells short then buys the same security on the same day) four or more times in five business days, provided the number of day trades are more than six percent of the customer's total trading activity for that same five-day period. Under the rules, a pattern day trader must maintain minimum equity of $25,000 on any day that the customer day trades. The required minimum equity must be in the account prior to any day-trading activities. If the account falls below the $25,000 requirement, the pattern day trader will not be permitted to day trade until the account is restored to the $25,000 minimum equity level.
The rules permit a pattern day trader to trade up to four times the maintenance margin excess in the account as of the close of business of the previous day. If a pattern day trader exceeds the day-trading buying power limitation, the firm will issue a day-trading margin call to the pattern day trader. The pattern day trader will then have, at most, five business days to deposit funds to meet this day-trading margin call. Until the margin call is met, the day-trading account will be restricted to day-trading buying power of only two times maintenance margin excess based on the customer's daily total trading commitment. If the day-trading margin call is not met by the fifth business day, the account will be further restricted to trading only on a cash available basis for 90 days or until the call is met.
In addition, the rules require that any funds used to meet the day-trading minimum equity requirement or to meet any day-trading margin calls remain in the pattern day trader's account for two business days following the close of business on any day when the deposit is required. The rules also prohibit the use of cross-guarantees to meet any of the day-trading margin requirements."

Source From: http://www.finra.org/investors/smartinvesting/advancedinvesting/daytrading/p005906


Am I correct in my assessment that I wouldn't be a Pattern Day Trader regardless?
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If you trade 10 stocks 3 times or 30 trades in a day you will automatically be flagged as a pattern day trader....the other thing is that if you don't have margin you have to wait 3 business days for those funds to settle before you are able to make any more trades....
 
If you are using Ameritrade to trade, commissions are going to knock you down...$20 round trip is crazy expensive if you are trading 50-100 shares...if you trading 2500...5000...10000 shares its fine.....
Checkout other trading sites that offer $4.95 per trade....even scottrade is $7.
Ameritrade is too expensive if you are making 3-5 daytrades a day.
 
Thanks guys, really appreciate it.. The reason I have decided against a margin account, is not only the margin interest I would have to pay back, but I don't like the $25k I have to pay back. I feel I'd trade more comfortably without the extra margin risk. I only have $40k to play with. From my understanding with a cash account I don't have to worry about the $25k daily balance requirement, (which would only leave me $15k of my own cash unless I rely heavily on margin borrowing). I actually don't want to invest more than 20% of my savings in a day max, so I decided to just add more money to my account so I could trade $10k daily, 4 times a week this way.. Any suggestions on which trading day should I take off? Is it true Friday's generally are not the best trading days?


Thanks again about your input about Ameritrade.. Their platform and service seems pretty impressive, however I agree they're a bit too expensive. What's your opinion on IB and Scottrade?
 
I haven't used IB, however there are plenty of threads about them that you could find using the search function. I used Scottrade a long time ago and their platform wasn't great.

You might want to check out thinkorswim. Very good platform and I believe they still have a per share commission rate that you can get of $.015 per share with a $5 minimum. Ask their customer service department about this. You might also be able to negotiate with them. That was possible in the past.

OptionsHouse is another broker you might want to check out. $4.95 flat and their platform is good as far as I know.
 
Pattern day trading rules, stopped me trading stocks profitably ( Noooo ), 17years ago I guess, that's scarey, trying to hold over night was killing me.

Without Margin, you can buy - Sell - Buy again, but can't sell till the next day also, be warned, so your restricted to all of your funds, in then out, then back in again then don't bother setting a SL.

Also without Margin, you can't short.

If you want to trade that much, I'd go as above IB or something and day trade the Futures market, no Pattern Day trader rules at all, do what you want. Bigger Margin aswell, just put 10% at risk, you'll be able to theoretically make as much as 40K with no margin with that fairly easily.
 
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