Why would there be rules like this? What is the purpose? Are weekends and holidays counted as part of the 5 day rolling period? Seems this only benefits MM more than traders.
Pattern Trader
- Thread starter The Rookie
- Start date
Robert Morse
Sponsor
No more than 3 day trades in any 5 rolling business days.
http://www.finra.org/investors/day-trading-margin-requirements-know-rules
FINRA put this in place...
The primary purpose of the day-trading margin rules is to require that certain levels of equity be deposited and maintained in day-trading accounts, and that these levels be sufficient to support the risks associated with day-trading activities. It was determined that the prior day-trading margin rules did not adequately address the risks inherent in certain patterns of day trading and had encouraged practices, such as the use of cross-guarantees, that did not require customers to demonstrate actual financial ability to engage in day trading.
Most margin requirements are calculated based on a customer's securities positions at the end of the trading day. A customer who only day trades does not have a security position at the end of the day upon which a margin calculation would otherwise result in a margin call. Nevertheless, the same customer has generated financial risk throughout the day. The day-trading margin rules address this risk by imposing a margin requirement for day trading that is calculated based on a day trader's largest open position (in dollars) during the day, rather than on his or her open positions at the end of the day.
I do not agree with FINRA that accounts under $25,000 should not get the benefit of recycling BP during the day. I do think that accounts under $25,000 should not get 4X. Futures do not have this rule.
Bob
http://www.finra.org/investors/day-trading-margin-requirements-know-rules
FINRA put this in place...
The primary purpose of the day-trading margin rules is to require that certain levels of equity be deposited and maintained in day-trading accounts, and that these levels be sufficient to support the risks associated with day-trading activities. It was determined that the prior day-trading margin rules did not adequately address the risks inherent in certain patterns of day trading and had encouraged practices, such as the use of cross-guarantees, that did not require customers to demonstrate actual financial ability to engage in day trading.
Most margin requirements are calculated based on a customer's securities positions at the end of the trading day. A customer who only day trades does not have a security position at the end of the day upon which a margin calculation would otherwise result in a margin call. Nevertheless, the same customer has generated financial risk throughout the day. The day-trading margin rules address this risk by imposing a margin requirement for day trading that is calculated based on a day trader's largest open position (in dollars) during the day, rather than on his or her open positions at the end of the day.
I do not agree with FINRA that accounts under $25,000 should not get the benefit of recycling BP during the day. I do think that accounts under $25,000 should not get 4X. Futures do not have this rule.
Bob
Thanks Bob. If 3 day trades have been met does that mean if you attempt to sell the trade on the 4th or 5th day outside of the 3 days does that count as a 4th trade?
Robert Morse
Sponsor
If I understand you, No. A day trade is a buy and a sell of the same security in that day. If you buy it on Monday and sell on tuesday, that is not a day trade. You will not recover your BP from that trade until over-night.
what does "BP" represent?
Robert Morse
Sponsor
Buying Power.
A Pattern Day Trader is a person who executes 4 or more day trades (options and equities) in 5 business days in a margin account, provided the number of day trades are more than six percent of the customer's total trading activity for that same five-day period.
Two last questions to make sure I am understanding this correctly then I am moving on from this topic:
1. Buy and sell made on Monday, Thursday, and Friday. Would Monday be the start of a new 5 day rolling period?
2. If you brought the same stock on Monday and sold it on Tuesday and then brought a different stock on Tuesday and sold it on Wednesday. This would not be viewed as Day Trading?
1. Buy and sell made on Monday, Thursday, and Friday. Would Monday be the start of a new 5 day rolling period?
2. If you brought the same stock on Monday and sold it on Tuesday and then brought a different stock on Tuesday and sold it on Wednesday. This would not be viewed as Day Trading?
Robert Morse
Sponsor
1: Yes
2: No
2: No
1) Yes, you could make another day trade on the second Monday but that would be the 3rd trade in the next rolling 5 day period (the first Monday trade drops off and now you have done trades on Thursday, Friday and Monday so you have to wait 2 days).
2) Yes, this would not be viewed as day trading since you did not day trade.
2) Yes, this would not be viewed as day trading since you did not day trade.