Question about Settlement Dates and Trading 100%

[abcde12345]

Hello,

I have a somewhat basic yet complex question which I have not been able to find an answer to anywhere online. I'm interested in day trading stocks using 100% of my account funds every trade. Is this even possible? Are there any ways to actually bypass the settlement date? A few factors seem to stand in my way:

Settlement dates do not allow me to do this, because I have to wait three days before I can complete another full trade. I assume, then, that I must open a margin account (I am not interested in trading on borrowed money, but only in bypassing the settlement date)? But there seem to be two problems with this:

First, don't I have to put at least half of the funds in cash for a given order? For instance, if I have an account with $25,000 and I wish to trade $20,000 of it (yes, I know this is not 100%, but it's only for security to cover losses; from here on take 20k as "100%" of my account), don't I have to put up 10k? And, if I put up 10k cash, don't I then have to wait the full three days for it to settle?

Second, according to the day trading rules, I have to maintain a cash balance of $25,000 constantly. Does this mean that I can't buy $20,000 in equity, then sell a few minutes later, thereby only dipping below the $25k for a short time? In other words, if I have to constantly maintain 25k, will I effectively never be able to trade 100% of my account?

Are there any ways to deal with the settlement problem and trade 100% of my account?

Any help is appreciated.

 

[Rhody Trader]

You're reading too much into things. You can always us 100% of your account to trade stocks. The $25k rule is account size, not cash balance. And the settlement date isn't something you really need to concern yourself with. When you do trades they will reflect in your account immediately.

 

[abcde12345]

Perhaps I am wrong (and correct me if I am), but isn't the problem with settlement (I'm a US trader) that I can't reinvest the money the same day? In the USA, trades take three days to settle. This means that it takes three days for me to fully complete the transaction (actual transfer of funds). I still "have" the funds, you are correct; but my "having" is only in theory. In reality, if I sell a stock, I do not actually own the funds until three days later, when they are settled. Thus, according to the rules of the SEC, I cannot buy and then sell a stock again, because then I'm buying with money I don't actually have. This is called a "free ride," and I get in a bit of trouble for it.

http://www.sec.gov/answers/freeride.htm
http://www.sec.gov/investor/pubs/tplus3.htm
http://en.wikipedia.org/wiki/Free_riding

 

[HowardCohodas]

Here is the interesting thing. For all practical purposes, it only matters what rules your broker follows. The can't do less than the requirements, but they can do more.

Our opinions matter little.

Call your broker and ask.

 

[Rhody Trader]

In reality, if I sell a stock, I do not actually own the funds until three days later, when they are settled. Thus, according to the rules of the SEC, I cannot buy and then sell a stock again, because then I'm buying with money I don't actually have. This is called a "free ride," and I get in a bit of trouble for it.

There's no free ride. You're thinking of it as if the trades were being settled in two different time schemes. They aren't. If you sell 100 shares of XYZ today for $50 (receive $5000) then turn around and buy 200 shares of ABC for $25 (paying $5000) today what's going to happen? On settlement day the 100 shares of XYZ go from your broker to the receiving broker and your broker takes $5000 in return at the same time as it sends $5000 on your behalf to the broker holding the ABC shares you bought, receiving said shares in return.

That, of course, is only what's happening if you're the broker's only account. In reality, the brokers are doing netted transactions covering thousands of accounts. The shares and money involved in your trades could potentially just be shuffled around the accounts of one single broker.

 

[abcde12345]

Ah, now I understand. Thank you for that clarification.