Sept.28 rule does not give 4:1 margin

S

stockerup

This is only my second post, but I read this site daily and have learned more about daytrading here than anywhere I've been. It is was here that I learned about the new daytrading rule that goes in effect Sept. 28th.

After learning about the new rule, I wrote a letter of protest to the SEC, and their reply was basically a written statement of the new rule changes. I also went a little further and called NASD Regulation, Inc. to get more information. I talked to Susan DeMando who absolutely would not let me get a word in, and after I told her I was paying for the call she hung up on me. But, what I was told has realy disturbed me; because I was under the impression that the new rules, effective Sept. 28, would allow me to have 4:1 margin, however, that is not the case.

It is my understanding that we, still, will only get 2:1 margin. The 4:1 margin that everyone has talked about in reality means that you can only trade up to 4 times the amount of cash you have in your account in any given day; which is calculated at the end of the previous day, according to how much cash was in your account at that time.

For example, if you have $25,000 in your account at the end of the day on Monday, you can only trade up to $100,000 worth of stock for the entire day on Tuesday. In other words, you can only do 2 round-trips if you buy 1000 shares of a $50 stock; this is because of regulation T. Meaning, that the trades do not technically clear for 3 days under current rules, and your buying power would be depleated.

Ms. DeMando assured me that the new regulations were not for the benefit of traders. Instead, it is to safeguard brokers from taking loses on margin loans.

I know this sounds un-American as one poster said, but it is here and has been passed by the SEC. The link to the website at NASD Regulation, Inc. is:

http://www.nasdr.com/pdf-text/0126ntm.txt

Thanks in advance for your response and thanks for all the good posts I read every day.
 

stockerup,

i dont think Ms DeMando is correct.. if you open a margin account with a typical discount broker (MyDiscountBroker.com rings a bell) and your buys and sells add up to more than your buying power, the clearing firm will close your account for what is called "freeriding".. basically, because your trades take 3 days to settle, you cannot re-use funds for that same period.. otherwise, you are borrowing beyond the 2:1 margin limit.. what direct access firms and some of the better discount brokers have done, is speed up the process, essentially processing the transactions as though they were already cleared, thereby releasing your cash to be used again..

consider this.. if this rule were going to stamp out all daytraders, do you think Schwab would have stepped up to the plate with CyberCorp? not likely.. the rule just makes it harder for beginning traders to compete..

oh yeah.. just so you dont think you are the only one who has been treated poorly by the big boys.. one time right after i started trading i called up one of the trading desks for knight/trimark securities to try and understand what was happening to my orders.. i got shuffled around until finally this one lady was willing to talk to me for a second.. when i told her i was a daytrader she laughed at me.. she said "why do i want to talk to you, daytraders are our competition".. in a way, it warms my heart to know that they get so testy over us being on their playground =)..

good trading

-qwik


 
THIS BETTER NOT BE TRUE!!!!

I thought the first rule of a $25k minimum account size was bad enough. If this is what the 4 to 1 margin means then I'm done. And so are thousands of other traders. Who are these morons making these rules? If you go flat at the end of the day who gives a damn how many trades you did during the day! The people they should be worried about are the ones taking home losing positions on margin every night, and then eventually riding them into the ground. Hopefully this is NOT what the new rule means. I hope to see some second opinions here.

 
I agree with you qwiktrade, this makes no sense. But if you go to the website you'll understand what I'm saying.

Specifically, look at opening paragraphs (3) and (4); then look at attachment A, article (iii). This is going to effect alot of traders.
 
4:1 daytrading margin can either be based upon the aggregate of all trades during the day OR the largest open position during the day, depending on which method your broker elects. From the NASD web site:


4 The firm has the option to calculate day-trading margin requirements based on
either the largest open position at any given time during the day, or on the customer’s
total trading commitment during the day. If the firm chooses to base day-trading margin
requirements on the customer’s largest open position during the day, the firm must
maintain “time and tick” records documenting the sequence in which each day trade is
completed.

 
Any of you guys consider becoming a professional and not be affected by all of this?

Professionals aren't held under Regulation-T which is what is being modified.

rtharp
 
rtharp,

yes.. i have considered going with a pro firm.. actually, i sent a resume to ETG about 9 months ago before i switched from being a spread trader on the NYSE to trading the NAZ.. by the time they got around to contacting me i had really forgotten about it.. in hindsight, that would have been the correct thing to pursue though.. trying to learn to trade on my own in the middle of a market crash wasnt the smartest thing ive ever done..

on one hand it would be quite valuable to associate with successful traders and learn how they think.. on the other hand there arent any firms in my city, so i would have to move.. and since the new daytrading rule wont really affect me, i cant see how i would really benefit that much from being a remote firm trader..

i would be curious to know how much benefit you feel it has been to be part of a firm.. what influence if any has being around other traders had on your own performance? i was browsing around on your website the other day and noticed that your father is an accomplished trader.. did you learn to trade under his guidance or did you rely on training from your firm? one last thing.. any words of wisdom concerning the best way to select a firm?

thanks =)

-qwik
 
Originally posted by qwiktrade

oh yeah.. just so you dont think you are the only one who has been treated poorly by the big boys.. one time right after i started trading i called up one of the trading desks for knight/trimark securities to try and understand what was happening to my orders.. i got shuffled around until finally this one lady was willing to talk to me for a second.. when i told her i was a daytrader she laughed at me.. she said "why do i want to talk to you, daytraders are our competition".. in a way, it warms my heart to know that they get so testy over us being on their playground =)..
More...

LOL, and I thought I was the only one who got the "royal treatment" from Knight. You couldn't count fast enough the number of times the person on the other side of the handset used the "F" Word once he found out I was a daytrader.

You see, back in the "old days," while the iNets were running like crazy, NITE was getting away with murder. Here is why. NITE was acting as both an ECN amd MM. Consequently, the only way to hit an ECN was through SelectNet Preference (ECNs are not SOESable). A fill should be immediate. However, if you'd preference NITE when he was acting as an ECN, he would still take his 17 seconds just as if he was a MM. Back then it could have meant 2-5 point drop on CMGI ... And if you hit him with a SOES order, he would ignore it just as if he was an ECN. So, I called and bitched and wanted answers. And guess what I got ... At least 200 answers beginning with F :)

I later found out about the order flow "auto ex" priority. Although I could not prove it, it is my feeling that NITE gave it to us for a long time. Now, it is payback time. Just look at the earnings estimates, LOL.
 
Thanks for the advice Rtharp. I think you've got the answer. Recently, I've considered getting my series 7 and my wife has even been encouraging me. But I am thinking she's only trying to get me out of the house and off the net.

My problem is that I would have to move. Like Qwiktrade, I don't have a pro firm near by. Then again we barely have sunlight where I live. Just recently my co-op phone company told me they had built a substation within 3 miles of my house, and they were planning to run a DSL line-- I almost broke down and cried. I know what you're thinking, ALABAMA. No, not quite, but almost as bad. Maybe with all this money I've been making in the market lately I can save up enough to make the move. Any suggestions on a town?
 
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