Sept.28 rule does not give 4:1 margin
- Thread starter stockerup
- Start date
I believe the section of the SEC notes that apply is as follows:
"(3) Day-trading buying power. The amendments limit day-trading buying power to four
times the day traderâs maintenance margin excess. This calculation is based on the
customerâs account position as of the close of business of the previous day."
My interpretation of this is that:
1. Buying power is not the total amount that can be used for that day. It is the amount that can be used on any open trades at any given time.
2. Maintenance Margin Excess is the amount of equity available after calculating the required maintenance margin.
For example, Etrade's maintenance margin requirement is normally 35%. So, if at the close of business (assuming an account balance of $25,000), you held $50,000 of stock, you would be required to have an equity balance of at least $17,500. Therefor the maintenance margin 'excess' would be $7,500. Multiply by 4 and your available buying power the following day would be $30,000. If you only held $30,000 of stock at the end of the day your buying power for the following day would be [$25,000 - ($30,000 x 35%)] x 4 = $52,000. Etc...
3 If you close flat at the end of the day, your excess would be your full capital so therefor in theory you should get 4:1 margin the following day.
**Maintenance margin requirements vary from broker to broker , stock to stock and also from long to short. The requirement takes into account such factors as volatility, portfolio diversification etc...
This is my take but I tend to think better with numbers than I do with words so my interpretation may not be accurate. Perhaps someone who has experience in the brokerage world would have a better idea.
"(3) Day-trading buying power. The amendments limit day-trading buying power to four
times the day traderâs maintenance margin excess. This calculation is based on the
customerâs account position as of the close of business of the previous day."
My interpretation of this is that:
1. Buying power is not the total amount that can be used for that day. It is the amount that can be used on any open trades at any given time.
2. Maintenance Margin Excess is the amount of equity available after calculating the required maintenance margin.
For example, Etrade's maintenance margin requirement is normally 35%. So, if at the close of business (assuming an account balance of $25,000), you held $50,000 of stock, you would be required to have an equity balance of at least $17,500. Therefor the maintenance margin 'excess' would be $7,500. Multiply by 4 and your available buying power the following day would be $30,000. If you only held $30,000 of stock at the end of the day your buying power for the following day would be [$25,000 - ($30,000 x 35%)] x 4 = $52,000. Etc...
3 If you close flat at the end of the day, your excess would be your full capital so therefor in theory you should get 4:1 margin the following day.
**Maintenance margin requirements vary from broker to broker , stock to stock and also from long to short. The requirement takes into account such factors as volatility, portfolio diversification etc...
This is my take but I tend to think better with numbers than I do with words so my interpretation may not be accurate. Perhaps someone who has experience in the brokerage world would have a better idea.
OK to answer all of these.
First one thing there are a few pro firms that have a minumum of $15,000. I'm not sure if they will have to raise their minimums with the new rule but they aren't held under Regulation -T. So that might be an idea to get around the minimum rule of $25,000.
Other firms that are proprietary will sometimes fund traders who show potential/promise so there is another idea.
Stockerup
I'm opening an office soon here in my town. If you don't mind being up early (Pacific Coast time) you are more than welcome to join me. I'm in San Diego , CA. Nice weather year round, beach is just a few minutes away.
email me for more details......
To another post. Yes my father is the famous Dr. Van Tharp one of the Market Wizards. I've learned a ton from him. I've also learned a lot on my own by reading just about any trading book I can get my hands on, spending time on the floor of the CBOT, and finding great traders to get inside their head. I have learned from traders at Echo though, and have plans to start to travel to different offices so I can trade next to some of their superstars for a few weeks. Figuring that maybe some of their skills can rub off on me.
The Professional firms I know of are........
Some of Proprietary/ some trade for yourself and some are both.
These firms maybe a solution to the new ruling in a few months for a few traders.
On Site Trading
800-513-2231
Broadway Trading Proprietary under JGM( contact info unavailable)
ETG Proprietary http://www.etgtrade.com
Bright Trading. http://www.stocktrading.com
WorldCO http://www.worldcollc.com
BKWD (contact info couldnt' find)
Liber and Weissman http://www.stocktrade.net
Van Buren Securities. http://www.vbsecurities.com
Daytrading.net
Schonfeld Securities (haven't been very responsive to me) (212) 752-3999
FMB, LLC 858-658-9290 (call after market hrs)
All Tech http://www.attain.com
And my personal favorite as I'm with them
http://www.echotradeonline.com
Robert Tharp
http://communities.msn.com/rtharpsland
First one thing there are a few pro firms that have a minumum of $15,000. I'm not sure if they will have to raise their minimums with the new rule but they aren't held under Regulation -T. So that might be an idea to get around the minimum rule of $25,000.
Other firms that are proprietary will sometimes fund traders who show potential/promise so there is another idea.
Stockerup
I'm opening an office soon here in my town. If you don't mind being up early (Pacific Coast time) you are more than welcome to join me. I'm in San Diego , CA. Nice weather year round, beach is just a few minutes away.
email me for more details......
To another post. Yes my father is the famous Dr. Van Tharp one of the Market Wizards. I've learned a ton from him. I've also learned a lot on my own by reading just about any trading book I can get my hands on, spending time on the floor of the CBOT, and finding great traders to get inside their head. I have learned from traders at Echo though, and have plans to start to travel to different offices so I can trade next to some of their superstars for a few weeks. Figuring that maybe some of their skills can rub off on me.
The Professional firms I know of are........
Some of Proprietary/ some trade for yourself and some are both.
These firms maybe a solution to the new ruling in a few months for a few traders.
On Site Trading
800-513-2231
Broadway Trading Proprietary under JGM( contact info unavailable)
ETG Proprietary http://www.etgtrade.com
Bright Trading. http://www.stocktrading.com
WorldCO http://www.worldcollc.com
BKWD (contact info couldnt' find)
Liber and Weissman http://www.stocktrade.net
Van Buren Securities. http://www.vbsecurities.com
Daytrading.net
Schonfeld Securities (haven't been very responsive to me) (212) 752-3999
FMB, LLC 858-658-9290 (call after market hrs)
All Tech http://www.attain.com
And my personal favorite as I'm with them
http://www.echotradeonline.com
Robert Tharp
http://communities.msn.com/rtharpsland
stockerup,
This is a little off topic, but to respond...I'm from Alabama. I have access to cable and DSL, have a proprietary firm available (only 1, but available nonetheless), and, contrary to popular belief, we recently started wearing shoes and installed indoor plumbing.
Just wanted to clarify...
Kirk
BTW, I also read the 4:1 margin rule the way you did and thought that no one would stand for it, so I must be interpreting it wrong. Suddenly, even the traders with more than $25k would need to worry, since most daytraders probably trade more than 4 times their nominal account size in a day.
This is a little off topic, but to respond...I'm from Alabama. I have access to cable and DSL, have a proprietary firm available (only 1, but available nonetheless), and, contrary to popular belief, we recently started wearing shoes and installed indoor plumbing.
Just wanted to clarify...
Kirk
BTW, I also read the 4:1 margin rule the way you did and thought that no one would stand for it, so I must be interpreting it wrong. Suddenly, even the traders with more than $25k would need to worry, since most daytraders probably trade more than 4 times their nominal account size in a day.
WarEagle,
I have never been to Alabama, but any newbie trader unless
very well healed should live in a very cheap area. I mean
some of us are snobs and have to live in an urban, and
very cosmopolitan city like New York City or San Francisico,
but practical is it ? NOT !! One thing I liked about Bright
is their off the wall thinking - move the headquoters to
Las Vegas !! Huh ?? It's genius, it's a cheap city to
live and a fun city. I hope Alabama is as much fun as LV !
Cheers
I have never been to Alabama, but any newbie trader unless
very well healed should live in a very cheap area. I mean
some of us are snobs and have to live in an urban, and
very cosmopolitan city like New York City or San Francisico,
but practical is it ? NOT !! One thing I liked about Bright
is their off the wall thinking - move the headquoters to
Las Vegas !! Huh ?? It's genius, it's a cheap city to
live and a fun city. I hope Alabama is as much fun as LV !
Cheers
NKNY,
I agree, but they have always done this in cash accounts and many online brokers did it for margin accounts. Its due to the T+3 rule for clearing trades. You capital is locked up until the trade clears, which has always been 3 business days. I'm not sure how the regulations work that allowed some firms to use time and tick clearing, but they all should do this. I think it is ridiculous and antiquated to wait 3 days to clear. I imagine this originated before electronic clearing when people still mailed stock certificates to each other. Futures exchanges have been clearing on a marked to market basis since the beginning and have not had such limits. You would think the stock guys would have dropped it long ago in order to generate higher commissions in churned accounts. But, we are dealing with political forces, not logical ones...
Andras---not as fun as Vegas I can assure you, lol.
Kirk
I agree, but they have always done this in cash accounts and many online brokers did it for margin accounts. Its due to the T+3 rule for clearing trades. You capital is locked up until the trade clears, which has always been 3 business days. I'm not sure how the regulations work that allowed some firms to use time and tick clearing, but they all should do this. I think it is ridiculous and antiquated to wait 3 days to clear. I imagine this originated before electronic clearing when people still mailed stock certificates to each other. Futures exchanges have been clearing on a marked to market basis since the beginning and have not had such limits. You would think the stock guys would have dropped it long ago in order to generate higher commissions in churned accounts. But, we are dealing with political forces, not logical ones...
Andras---not as fun as Vegas I can assure you, lol.
Kirk
I would be curious to know if anyone has asked their brokers about this, or if the brokers even have a clue yet? I know def mentioned that IB is still working on implementation of the rules, maybe he will update us as their policies are put in place. Has anyone heard from Cyber, MB, et al.?
I think people will be in for a shock if for some reason time and tick accounting is not permitted in the new rules. The giant sucking sound of people leaving to trade futures will be deafening.
Kirk
I think people will be in for a shock if for some reason time and tick accounting is not permitted in the new rules. The giant sucking sound of people leaving to trade futures will be deafening.
Kirk