What Constitutes a Day Trade
What Constitutes a Day Trade?
That's honestly a good question and one, we as traders should know the answer to.
This is important because your account will literally be put on hold, or frozen, if you fall within the "pattern day trader" rules and regulations.
According to FINRA, which stands for Financial Industry Regulatory Authority, you will be flagged as a pattern day trader if you complete four or more day trades within a rolling five business-day period if done in a margin account.What is a day trade in that instance? It?s a buy to open, sell to close; AKA a round trip.
Let's use an example. I learn best from examples anyway.
Susan buys AAPL shares on Monday at 10:00 a.m. AAPL pops $1.00 and she sells them at 11:00 a.m. She made a profit! Yeah, Susan! She also completed one day trade, or round trip.
Tuesday morning, Susan notices SNDK is just free falling. She sells the stock short at 9:32 a.m. and buys to close at 9:49 a.m. 17 minutes and an outrageous profit already? She must be a Real Life Trader! She is, but I digress. She just completed her second round trip.
On Wednesday she trades FB, in and out; third round trip. One more trade like this before Monday of the upcoming week and she will be flagged as a day trader. You get the idea. If you have a margin account you can day trade all you want as long as you keep over $25,000 in your account.
'They' make it sound like being flagged as a day trader is scary, bad, or expensive. It's not. This is really just for your broker and for a few other regulatory commissions like the Security Exchange Commissions, AKA the SEC.The same rules apply if you want to day trade options. There is an exception, however; if you use a cash account to day trade options you can do this even if you have less than $25,000. The only "catch" is you can only trade until your daily buying power is done. Meaning if you have a $5k account you can only trade $5k worth of options on that day.
It'll reset the following day and you're back at it! I have REALLY good news, though!
What if I told you there is a tool out there that would allow you to day trade all you want, massively cheaper and faster than your current broker, which also provides you allocated funds to day trade with? How much funds? $30,000??? What to learn more?
THANK you for reading! : ) You rock!
~ Jerremy Alexander Newsome