One is defined asday trader by trading stocks, options, commodities, or futures online. Do you have any idea on the requirements in online day trading? In our user’s assembly, this question crops up several times. What comes about if I inadvertently (or deliberately) disobey one of these rules?
There are several variations of actions that can occur that may prompt online day trading. I will do my best to answer most of them. Since each condition differs, I will state the most widespread.
Online Day Trading
Online day trading is discussed in this article as it relates for stocks and options vs commodities and futures. Commodities and Futures have dissimilar online day trading rules. I have no idea about other trading disciplines. You will learn day trading inside functions.
Online day trading is buying and selling of a stock, option, future, or commodity on the same day. An example is, if you buy 1000 shares of stock ABC (fictitious symbol) at 9:30 am and sell the 1000 shares of stock at 12:15 pm, you have just done online day trade.
Pattern Day Trader
A customer performing 4 or more same online day trades within 5 successive business days with trading activities greater than 6 % of the total trading activity done for that same 5 day period (from FINRA web site) is called a pattern day trader according to the Exchange Rule 431 (Margin Requirement). The margins for commodity and future day trading is different.
Day Trading Rules for a Day Trading System
1. The equity in your trading account must be retained over $ 25k to be able to trade and not encounter problems.
Futures and commodities offers much more leverage, one can trade with $ 500 margins per contract.
2. Any income from the stock’s transaction cannot be utilized in a new trade on the same day when buying and selling similar stock in the same day for accounts with less than $ 25,000. This may also hinge on each brokerage account.
In converse, futures and commodity trading allows a trader to trade multiple times in the same day using the same funds.
3. Only 3 trades are allowed within 1 week (five trading days). By the fourth day of trading, you will be penalized with a 90-day suspension of all trading activities.
This does not apply to futures and commodities. A day trader can transact many times in a day with no restrictions.
Penalties with Stocks and Options. The importance of a day trading course.
1. A 90-day suspension of all trading activities may be given.
2. Your account can be suspended for 90 days. No trading will be permitted in said account.
Staying away from Problems
1. The trading account should sustain a smallest amount of $ 25,000 equity.
2. For accounts under $ 25k, never buy and sell a position in the same day, keep your position overnight.
3. During buying and selling the same stock/option in the same day, do not go into a new trade where the cash from the sale of the stock just sold will be used in the purchase of a new position.
4. If you have acquired a position from cash from a former same day sell, it would be wise to keep that position until the next day.
5. Carry out day trade activity up to only 3 times per week.
I have attempted to present the day trading rules as I have encountered them over my years of trading. You can also surf the internet for more information on online day trading and pattern day trader. A excellent site is Wikipedia.
I have utilized accounts under $ 25,000 and have never had a 90-day suspension rule applied, but have had several admonitions about a trade that may elicit the 90-suspension canon. When this happens, I just postpone trading and will wait till the following day. Enjoy trading…
Day Trading System
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Online Day Trading
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