Day Trading Margin Requirements: Know the Rules - Page 7

They should. If not, you must be on a violation. That'll end after 90 days. In my example, if you sold those C shares before the 3 +1 days, then they violate you and limit you to only settled funds for 90 days.

I'd call them. If that's not the case, but I think it is, I'd fire them and would find new broker.

I hope they don't violate me!

No, what I meant is that Ameritrade must be covering every angle and not allowing me to get into that situation by not making those funds available.

I know I've heard from people that have been given the free riding suspension that are with ETrade and Scottrade. Maybe Ameritrade is doing it right.

I didn't read this thread..

But does anyone know if this rule applies to cash accounts? (Specifically, a cash account used for options.)

Thanks, I really appreciate it.

It looks like Optionshouse was giving me a little bit of misinformation (or maybe their policy is dumb). Day trading, here I come.

Clarification around rules at OptionsHouse

I work for the parent company of OptionsHouse, PEAK6 Online, so I hope you don’t mind if I try to clarify what our policy is around cash accounts, margin accounts and day trading in general. I think there might have been some miscommunication here so I hope this helps.

I think someone explained this earlier in the thread, but the amount of time it takes for trades to settle is an industry standard (not something unique to OptionsHouse). Stock trades take 3 days for the cash from any sale to settle in your account and options trades take one day to settle.

In order to make subsequent purchases with proceeds from a previous unsettled trade, you would need to switch to a margin account. Day trades can only be executed in a cash account IF you have enough cash in your account to cover the trade without using the funds from an unsettled trade.

Day trading rules only come into play if you have an option or security position that opens and closes during the same day. That said; day trades are subject to additional rules and other considerations specific to day trading. To get a good explanation on specific guidelines or buying power, your best bet is to call customer service at 1-877-653-2500.

As I said before, the amount of time it takes for trades to settle is not at all unique to OptionsHouse, but is an industry standard — there are variables around interest rates with margin accounts and other nuances with respect to day trading that may differ from broker to broker, but the amount of time it takes for trades to settle is universal.

Please let me know if you have additional questions. I’m always willing to help people get answers to their questions about OptionsHouse. My email address is spaul[at]peak6[dot]com.

Thank you!

Shannon Paul
Community Manager
PEAK6 Online, parent company of OptionsHouse

The funds are definitely cycling enough to keep you out of trouble.

When I first started trading with my Etrade account I was completely clueless and had my account restricted for 90 days. I bought a stock, sold it, then immediately bought another stock, then sold it within a day or two. Rinse and repeat 3 times. On the 3rd time the account was restricted and I couldn't trade for 90 days. That was a few years ago not sure what has changed since.

Granted that was with a $2500 account and I was nearly all in with every trade, so with $55k and rarely a day trade, you are on a good cycle to keep funds available constantly.

Is that mean if i have $5k, i can daytrade $1000 lots 5 times in one day, then do the same thing three days later for stocks. Right?

So i can daytrade max. 3 times in a 5 day period even my account is a cash account?

Let's say i buy the stock "A" (penny or big board) and sell it one hour later and buy it again in that day. Is it possible?

With a cash account you don`t have to follow the PDT (Pattern day trader) rule, it`s only if you have margin account. Yes, you can buy stock "A" and sell it the same day and then buy it back the same day IF you have avaliable funds to buy for. Because with an cash account you have to wait 3 days for the funds to settle after selling so in this example if you bought stock A the first time and used all your funds to buy it there will be no available funds left to re-buy it later that same day.

Following the example, i can buy that stock A the first time using all funds and sell it the same day and no need to wait 3 days. Correct?

No, you don`t have to wait 3 days with a margin account but if you have a cash account then you will have to wait for the funds to settle.

Day trading in a cash account is generally prohibited. Day trades can occur in a cash account only to the extent the trades do not violate the free-riding prohibition of Federal Reserve Board's Regulation T. In general, failing to pay for a security before you sell the security in a cash account violates the free-riding prohibition. If you free-ride, your broker is required to place a 90-day freeze on the account.

finra.org

Only if you use unsettled funds to trade. If you have say $10k, and buy in small enough batches, theoretically you could trade multiple times a day, multiple times a week.

I've made my way through this thread, and I find it enlightening. I am going to rehash parts of this thread in my own words in hopes of 1) bringing some added clarity to the issue and 2) seeing how badly I have mangled it all up. So, if anyone sees any errors, let me know.

When we are interested in which rules we need to follow, we must first consider what kind of account we have. In analogy, just as we will play by a different set of rules for checkers than for chess, so too do we need to consider the rules that apply to us depending on what kind of account we have. If we are using a cash account, we need not concern ourselves of the rules specific only to margin accounts; moreover, if we are using a margin account, there’s no need to worry about rules that apply only to cash accounts.

Suppose I use (and only use) a cash account. If that is the case, then I have no need (no need at all) to worry about rules that apply to those with margin accounts, but because (supposedly still) I have decided to play in a cash account, it behooves me to learn and follow the rules that apply specifically to cash accounts.

Do I care (even a little) about whether or not I’m flagged as a pattern day trader? Apparently not, for no person operating out of a cash account is bound by such rules; thus, so what (I exclaim) that I day trade in my cash account! The rules do not disallow it (so far as I can tell). Awe, but as I have no need to worry about that, that is not to say I have no worries at all, for I nevertheless need to play by the rules that do in fact apply to me.

As a short-term stock trader that occasionally day trades with a cash account, I must remain diligent in pursuit of ensuring that I do not cheat the cabby out his fare--take rides for free.

Therefore (as I aim to not be guilty of taking free rides), I will make every effort to buy only with settled funds, funds that take three days to settle—yes three, for recall, I am stock trader, not an options trader. Ooh, but confusion is abound (!), for some say that what I must worry about is selling (selling, I say) with unsettled funds.

That’s right, but interestingly enough, the case is such that I may not sell if I bought what I did with unsettled funds, but lo and behold, how in the world did it ever come to be that I was even able to buy with unsettled funds!!!

If I understand this correctly, then yes, we may not sell if what we bought was bought with unsettled funds (not without repercussions, at least), but does that (and that alone) mean that I should worry? Not necessarily. Not all men are willing to protect their significant others of the dangers that lurk nearby, and so too it seems to be the case that not all brokers are willing to protect their clients with cash accounts from inadvertently buying stocks with unsettled funds.

Several brokers have been mentioned in this thread. If you know which brokers do (and of course, which do not) allow clients to purchase stock with unsettled funds, please speak up. For example, if you use a cash account at Zecco, and if they do not allow the purchase of stock with unsettled funds, then let us know; likewise, if you use a cash account at Zecco, and if they do allow the purchase of stock with unsettled funds, then let us know.

I haven’t covered everything, and I certainly left out a great deal by not addressing those with margin accounts, but I didn’t want to post too lengthy of a post.

Anyhoots, I hope it’s clear, but most of all, I hope it’s accurate.

With kindest regards, I am and remain,

fast

Your post and analogies were colorful. However, were I to not already know what the rules were, I think your post would have provided more confusion than clarity. Too much non-essential commentary. But that's just my personal criticism.

To answer your last questions, I use both Zecco and Sharebuilder.

Sharebuilder allows me to buy with unsettled funds, though they did not always allow me to do that. I do not know if it was an across-the-board decision to do that for everyone, or if I earned the privilege because I was alerted in an email that they would allow me to purchase with unsettled funds. Taking great care and knowing the consequences, I have never sold before the funds have settled.

With Zecco, I am not allowed to purchase with unsettled funds, period. My buying power is clearly displayed, which shows me how much I can use to purchase stocks at any given time. There is also my cash balance, which will include funds that are settling. So, my cash balance and buying power can be two different amounts, but my cash balance will always be larger.

Let me know if I'm not clear

Thank you. Personal criticism when properly done is always welcomed by me.

By the way, I've read many of your posts, and I have come to respect your opinions.

Thank you again.

I'll give you an A-.

I always deduct a half letter grade when people resort to using smilies when they lack the ability to convey their emotions without them.

(just kiddin')

I'm with Zecco, and I got a good faith violation a couple weeks ago.