Pattern Day Trading and 4X buying power questions

[MoneyMarket]

I just got approved for 4X buying power for day trading. This is the e-mail I received:

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This buying power may only be used intra-day and may not be held past market close. To receive day-trading margin, please respond to this email.



Whether or not you choose to receive day-trading margin, when day-trading, it is your responsibility to track your start of day buying power. If your net day-trade purchases or sales exceed your start of day buying power, you will receive a margin call. Failure to meet this call promptly will result in your account being restricted to cash only (no margin) for 90 days. If you attempt to liquidate or buy to cover positions held overnight to raise next day-trading funds, the release of funds held for those positions will not impact your start of day buying power and any trades placed against those funds may result in a margin call.

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I'm confused as to what this means. Does this mean that I can't hold anything overnight past a certain percentage of my buying power?

Let's say I have $100 cash and 4X buying power which is $400. I buy 4 shares of a $100 stock and sell all the shares throughout the day for the same price. I then repeat this action another 9 times. Will I receive a margin call even though I do not hold any positions overnight?

 

[Marc to Market]

4:1 Day trade buying power is for day trading only. If you hold a position overnight with that much leverage, you will receive a Reg T margin call. If you don't meet that call, you can take what's called a "liquidation in lieu of payment" charge. You are allowed three of these in a rolling 12 month period. After the 4th, your account is restricted so that calls are due on T+1 (trade date plus one day). After the 5th, your account is closed.

2:1 Overnight Buying Power can be used for holding positions overnight. As long as you stay at or under 2:1 for overnights you should be fine. Just make sure the stocks you're trading are margin eligible. There are certain stocks (usually those under $3 or $5, although there are lots of exceptions such as leveraged ETFs) which cannot be bought on margin or shorted. You need to check with your broker to confirm the initial and overnight margin requirements.

In your example you would not receive a margin call provided it's a margin account. However, if your account does not meet the patterned day trader equity requirements of $25,000, you will be flagged as a patterned day trader and will not be allowed to day trade in it. Here's some more info:

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

Quote from MoneyMarket:

I'm confused as to what this means. Does this mean that I can't hold anything overnight past a certain percentage of my buying power?

Let's say I have $100 cash and 4X buying power which is $400. I buy 4 shares of a $100 stock and sell all the shares throughout the day for the same price. I then repeat this action another 9 times. Will I receive a margin call even though I do not hold any positions overnight?

 

[zhaoyun]

Quote from Marc to Market:

4:1 Day trade buying power is for day trading only. If you hold a position overnight with that much leverage, you will receive a Reg T margin call. If you don't meet that call, you can take what's called a "liquidation in lieu of payment" charge. You are allowed three of these in a rolling 12 month period. After the 4th, your account is restricted so that calls are due on T+1 (trade date plus one day). After the 5th, your account is closed.

2:1 Overnight Buying Power can be used for holding positions overnight. As long as you stay at or under 2:1 for overnights you should be fine. Just make sure the stocks you're trading are margin eligible. There are certain stocks (usually those under $3 or $5, although there are lots of exceptions such as leveraged ETFs) which cannot be bought on margin or shorted. You need to check with your broker to confirm the initial and overnight margin requirements.

In your example you would not receive a margin call provided it's a margin account. However, if your account does not meet the patterned day trader equity requirements of $25,000, you will be flagged as a patterned day trader and will not be allowed to day trade in it. Here's some more info:

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

Thank you for the clear explanation. i am also confused what it entaills.