Perplexed newbie. When opening a new account are there any tricks or special ropes to be aware of in establishing a pattern day trading status, other than the required minimum account balance? Do the brokers qualify you based on length of experience, income level etc. or is permission to pattern day trade just automatic based on the amount you deposit? Are some brokers easier to qualify with, if so which ones? I would really, really appreciate some guidance here before applying for an account. Thanks so very much!!!
Creekman
The easiest way to explain this is to paste some info from IB's site:
Day Trade: any trade pair wherein a position in a security (stock, single-stock future (SSF), bond or stock option) is increased ("opened") and thereafter decreased ("closed") within the same trading session.
Pattern Day Trader: someone who effects 4 or more Day Trades within a 5 business day period. A trader who executes more than 4 day trades in this time is deemed to be exhibiting a ‘pattern’ of day trading and is thereafter subject to the PDT restrictions.
In order to day trade, the account must have at least 25,000 USD in Net Liquidation Value, where Net Liquidation Value includes cash, stocks, options, and futures P+L.
The NYSE regulations state that if an account with less than 25,000 USD is flagged as a day trading account, the account must be frozen to prevent additional trades for a period of 90 days
So first note that this is a US requirement. Secondly, note that if a position is held open overnight then it is not a day trade. Thirdly note the number of day trades you can do within a 5 day period. As long as you don't hit this limit then you are not a pattern day trader and therefore do not need the minimum $25 k balance. It is the trading pattern that you exhibit that determines this.
Direct access brokers will also ask you to fill in a form describing the number of years experience, average number of trades and level of trading knowledge for each instrument that you intend to trade. This has nothing to do with pattern day trading, but merely a judgement on whether you will make a good customer.
Go to one of the direct access broker sites such as IB or Tradestation where you can download the forms and study them yourself. However I warn you that some brokers will know when you have downloaded their forms and their sales people will rush in to help you fill them in
I think you will find that most direct access brokers will have pretty much the same requirements. However the "experience" profile is something you can discuss with them and is unlikely to be a barrier. They will most likely give you a friendly warning of the dangers of trading and tell you how sensible and responsible you appear to be !!
Alternatively you can open a spreadbetting account with the minimum of fuss and the minimum of cash.
Hope that helps
Charlton
Thanks Charlton,
My concern is that without pattern day trading status you are limited to only 3 intraday trades in 5 and in a cash account you are limited to the T rule, again in effect limiting yout trading cash to every three days while you wait for funds to settle. To really make many trades it seems you have to use a margin account to avoid the T rule and I was afraid they are picky about who they give a margin account to if it is someone who is going to fall into the patten day trading profile. A regular cash account is so limited because of waiting for the funds to settle. Now,I don't know what a spread betting account is, maybe that is something interesting to know if you have time to fill me in. Thanks for the info!!!!
My concern is that without pattern day trading status you are limited to only 3 intraday trades in 5 and in a cash account you are limited to the T rule, again in effect limiting yout trading cash to every three days while you wait for funds to settle. To really make many trades it seems you have to use a margin account to avoid the T rule and I was afraid they are picky about who they give a margin account to if it is someone who is going to fall into the patten day trading profile. A regular cash account is so limited because of waiting for the funds to settle. Now,I don't know what a spread betting account is, maybe that is something interesting to know if you have time to fill me in. Thanks for the info!!!!
If you have $25000 plus some more to cover potential losses then I think that a broker will only be too pleased to open a margin account for you. If you are concerned that you don't have the experience profile then just talk to the broker. In fact the norm is to have a margin account.
For spread-betting you will have to take advice from others, because I do not have any spread-betting accounts. You gain on fewer restrictions and, in the UK, tax advantages, but you lose on spreads and possibly other ways, but I don't want to get into that debate.
Charlton
