Multiple Accounts??

Discussion in 'Learn how to trade or invest by asking questions' started by Geoff87, Jan 25, 2009.

  1. Geoff87

    Geoff87 New Member

    I have been researching the day trading strategy and would really like to start trying this. However I do not have 25000 dollars to throw in an account so that I can actually do this. To my understanding with any cash account you can make three round trades per 5 business days.

    My question is lets say I were to open TWO different accounts.....one through Scottrader.com and another through maybe Zecco or ne other broker. Could I get away with making three round trades in EACH account per 5 days and not get labeled as a pattern day trader? Thanks guys!

    Geoff
     
  2. LongArm

    LongArm Member

    First, just to be clear, a round trip trade must occur on the SAME DAY to be considered a day trade. You're correct, if you do more than 3 of these in 5 business days, you'll be labelled a pattern day trader. As for round trip OVERNIGHT trades, however, you can do as many of those as you like.

    Second, the pattern day trader rules apply to MARGIN accounts only. In cash accounts you can day trade all you want--but only to the extent that you don't violate T+3 settlement rules (which makes it difficult for many).

    As for opening margin accounts with multiple brokers, yes, that would be a way to get around the day trading rules.
     
  3. Geoff87

    Geoff87 New Member

    Ok cool that actually helped me understand the system A LOT better! as far as day trading cash accounts as much as i want.....Im under the impression that funds from a previous trade take a few days to clear before they can be used towards another purchase?? thanks man!

    Geoff
     
  4. LongArm

    LongArm Member

    In a cash account, trades take 3 days to settle. You can normally BUY with unsettled funds (unless your particular broker doesn't allow it), but if you then SELL that stock before the buy is paid for, you can get hit with a freeriding violation.
     
  5. Geoff87

    Geoff87 New Member

    Alright...im thinkin of a new way aroudn this then... i thought that you could only open a margin account with at least 25K dollars.. now ive learned that through Scottrader (and prolly many others) that I can open an account for as a low as $2000. If i were to open a margin account I would not have to wait for my funds to settle before SELLING these shares i just bought correct?? Also if i have a margin account could i do roundtrips overnight and this will still not count as a PDT?? thanks again brother!
     
  6. Florida

    Florida Member won weekly contest 10x won aug/08 simulator won apr/08 simulator won jan/09 simulator

    hey Geoff,

    The daytading rules were established to protect novice traders with minimum capital from doing stupid things by limiting the number of daytrades you can make in a given period of time. Until you can prove yourself to be profitable on a routine basis, forget about placing more than 3 daytrades per week. Take the time to study, learn everything you can, then re-study the same material, time and time again.

    Sure, the system can be manipulated to allow more trades, but then when you loose all of your capital in a short period of time, don't say that the government should have had rules to protect you.

    If you are really serious about learning to trade for a living, there are other ways to approach it other than the self taught, loose while you learn method. If you don't want to trade for living, but just make investments to supplement your real job, then just forget about daytrading all together.
     
  7. LongArm

    LongArm Member

    Naw, that's just the minimum required to DAY TRADE (regularly) in a margin account.

    Correct on both counts.
     
  8. Galt

    Galt Member

    Assuming everyone here is an EXPEREINCED trader, I am still amazed at how much confusion surrounds these issues. Here is MY take on it, and I would be delighted for someone to prove me wrong with a linkable reference.

    1. There are never any restrictions on closing a trade. T+3 rules have no impact on when you can sell. You can always close any trade, even if you are on pattern day-trader restrictions.

    2. In a cash account, funds will be available from a sale 3 days after the PURCHASE of that stock. In other words, buy on Monday, sell on Wednesday, funds available Thursday. Buy on Monday, sell on Thursday, funds available immediately. (If this varies by broker, I would love to see a link to a broker site explaining it differently, AFAIK, this is the minimum RULE and not subject to broker variance. Although some may force you to wait [incorrectly] three days after the sale as well)

    3. Pattern day trader rules apply to cash accounts AND margin accounts equally.

    4. The pattern day trader threshold is FIVE day trades in five day period. The fifth one puts you on restriction for 90 days. Therefore most brokers will only allow you to do four day trades in five days (and may prevent you from additional purchases at that point), since they do not want you on restriction any more than you do. But four is perfectly fine.
     
  9. aiki14

    aiki14 Well-Known Member won april/06 simulator won weekly contest 13x won feb/07 simulator won jan/07 simulator won nov/06 simulator won mar/07 simulator

    I understand the confusion, I have been PDT for so long I forget what the minutiae are, and haven't traded in a cash account in years. One thing that may be confusing is the "availability" of the money. You can Buy monday sell wedsday and buy thursday, but you can't get your cash out of the acct for another 3 days.
     
  10. LongArm

    LongArm Member

    No offense, but the confusion is all yours.

    Yes, you can always sell...but if you sell before the purchase was paid for, you'll likely receive a freeriding (or good faith) violation. Example:

    Monday you sell XYZ. Trade settles Thursday.
    Tuesday you buy ABC with the unsettled funds from the XYZ sell (which is fine).
    Wednesday you sell ABC. This is a violation because you're selling something you haven't technically paid for yet.

    This one you're right about...but then, no one has stated it differently.

    Wrong. Applies to margin accounts only. From FINRA's site:

    "The rules adopt a new term "pattern day trader," which includes any margin customer that day trades (buys then sells or sells short then buys the same security on the same day) four or more times in five business days"

    And:

    ...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."

    And if you ask any broker (as I have), they will tell you the same thing, unless they have their own, more restrictive rules.

    Wrong again. Read the quote above from FINRA. In fact, I'd love to see just one credible source that says it takes 5 day trades to be labelled a PDT. Never seen it in all the time I've researched/written about this stuff.
     
  11. Galt

    Galt Member

    Oddly enough, I can find NOTHIING on the SEC site about Pattern Day Trading
    .
    From the IB website:
    The item in red is what I remember. Yet it directly conflicts with "4 or more" in the previous sentence. I will concede that it is in fact 4 trades.

    Yet nowhere can I find any words indicating that cash accounts are exempt in any way from this, even if they otherwise comply with T+3 settlement rules.
     

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