help me to understand the day trade requirements
help me to understand the day trade requirements
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peterB · External communityPost link
External question — Personal Finance Stack Exchange
Author: peterB
Original post: https://money.stackexchange.com/questions/134881
License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/
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I am new to the stock market and the Day Trade. I need your help to clarify some definitions (from Fidelity):
"A Day Trade is defined as an opening trade followed by a closing trade in
the same security
on the same day in a Margin account."
"
the same security
" ---- means the same stock? or it means all different stocks. For example, if I sell stock A and buy A again on the same day will be treated as a Day Trade pattern action, how about if I buy stock A and sell stock A on the same day?
If I sell stock A and buy stock B and buy stock C on the same day, do these actions will be treated as a Day Trade pattern?
"A Pattern Day Trader designation requires a
minimum Margin equity
plus cash in the amount $25,000 at all times."
"
minimum Margin equity
" ---- what is this? Does this number come from the broker and tell me how much I can borrow?
"
a minimum Margin equity plus cash in the amount $25,000
" ---- how to read this section? it is "minimum Margin equity" + "$25,000 cash" or "minimum Margin equity + cash" = $25,000 ?
Another post said:
The $25,000 amount is for equity in your brokerage account (cash and investments)
.
The
investments
here includes the existing settled stocks/mutual funds I bought? For example, If I have an account with $30,000 worth of stocks/mutual funds (on a specific day.) and $20,000 cash, does this meet the $25,000 requirement?
I have two accounts (A1 and A2) in the same broker, can I maintain $35,000 cash in A1 and use A1 to meet the $25,000 requirement for A2?
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Ben Miller · External communityPost link
External answer — Personal Finance Stack Exchange
Author: Ben Miller
Original post: https://money.stackexchange.com/a/134886
License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/
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First, I will point you to FINRA's page
Day-Trading Margin Requirements: Know the Rules
. It covers all of your questions and more.
To answer each of your questions:
A day trade is when you buy and sell the same stock on the same day, or if you sell short and then buy on the same day. If you open a position for Stock A and then close at least part of that position on the same day, that is a day trade.
It needs to be for the same stock. If you buy shares of stock A and sell shares of stock B in the same day, that is not considered a day trade.
Related question:
Will this trading activity flag my account as PDT (Pattern Day Trader)?
The day trading minimum equity requirement comes from the Federal regulations. Once your account is flagged as a pattern day trading account, you will be required to maintain $25,000 in equity in the account. This amount can be in cash or in "eligible securities."
In your example, if you held $20,000 in cash and $30,000 in stocks and mutual funds, you would meet this requirement.
Related question:
Pattern Day Trade - $25,000 Margin Account Rule
You cannot combine the equity in different brokerage accounts to meet the requirements; each account that is flagged as a pattern day trading account must meet the equity requirement in order to be allowed to trade.
From FINRA's page:
Can I cross-guarantee my accounts to meet the minimum equity requirement?
No, you can't use a cross-guarantee to meet any of the day-trading margin requirements. Each day-trading account is required to meet the minimum equity requirement independently, using only the financial resources available in the account.
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Bob Baerker · External communityPost link
External answer — Personal Finance Stack Exchange
Author: Bob Baerker
Original post: https://money.stackexchange.com/a/134888
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Ben Miller provided a lot of good information in his answer. I'd add a few additional points:
A day trade is a round trip in an equity or option on the same day (buy then sell or short then cover).
Making a day trade isn't a problem. You'll be considered a pattern day trader if you trade four or more times in a rolling five business day period (and your day-trading activities are greater than six percent of your total trading activity for that same five-day period).
If you are flagged as a day trader, you must maintain $25k in cash and/or marginable securities at all times. If your account value falls below $25k, it's a violation and you will be restricted from day trading until you deposit cash or marginable securities, restoring the $25k level.
Traditionally, Reg T intraday margin for pattern day traders has been 25% (brokers can choose to offer less margin). You could theoretically buy $100k of securities with $25k but that's not a good idea because of the leveraged risk as well as a small fluctuation could lower your account value below $25k. With the expectation of pre-election volatility, a number of brokers increased their pattern day trader margin requirements circa September.
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Quoted from Forex.com.bd-Editorial External question — Personal Finance Stack Exchange Author: peterB Source score (net votes, not local likes): 1 Original post: https://money.stackexchange.com/questions/134881 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. I am new to the stock market and the Day Trade. I need your help to clarify some definitions (from Fidelity): "A Day Trade is defined as an opening trade followed by a closing trade in the same security on the same day in a Margin account." " the same security " ---- means the same stock? or it means all different stocks. For example, if I sell stock A and buy A again on the same day will be treated as a Day Trade pattern action, how about if I buy stock A and sell stock A on the same day? If I sell stock A and buy stock B and buy stock C on the same day, do these actions will be treated as a Day Trade pattern? "A Pattern Day Trader designation requires a minimum Margin equity plus cash in the amount $25,000 at all times." " minimum Margin equity " ---- what is this? Does this number come from the broker and tell me how much I can borrow? " a minimum Margin equity plus cash in the amount $25,000 " ---- how to read this section? it is "minimum Margin equity" + "$25,000 cash" or "minimum Margin equity + cash" = $25,000 ? Another post said: The $25,000 amount is for equity in your brokerage account (cash and investments) . The investments here includes the existing settled stocks/mutual funds I bought? For example, If I have an account with $30,000 worth of stocks/mutual funds (on a specific day.) and $20,000 cash, does this meet the $25,000 requirement? I have two accounts (A1 and A2) in the same broker, can I maintain $35,000 cash in A1 and use A1 to meet the $25,000 requirement for A2?
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