Question on Day trading requirements

Discussion in 'Learn how to trade or invest by asking questions' started by azgard, Jan 15, 2009.

  1. azgard

    azgard New Member

    i am thinking possibly doing more day trading. right now i got Scottrade on a cash acount and with the settlement restrictions i missed many chanced to make money. on scottrade it says i need to have 25,000 in equity. i was wondering CAn i buy a 20,000 CD an put like 5000 or 6000 in my trading account to activly trade with would that still count has having over 25,000 in equity if i got a CD with scottrade.
  2. 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

    The $25k must be in the same acct, and the acct value cannot cross under $25k. Most trading acct's can be set up to sweep any cash into a money market which isn't too much less than a CD. You need margin of $25k and you can't get margin on a CD, i don't believe.
  3. Galt

    Galt Member

    I hate to disagree with aiki.

    1. The $25k must be in your trading account. You MAY be able to own a CD in that account, if Scotttrade will let you do it.
    2. Day trading requirements have nothing to do with having a margin account or a cash account. You can day trade in a cash account. Just keep in mind that if you need to dip into your CD for even a second, Scotttrade will close out your CD and you will have to pay any penalties associated with that. A Money Market would be a smarter way to go.
    3. For that matter, a margin account combined witha CD would be smarter too, since it could let you "borrow" on margin rather than close out your CD if it comes to that.
    4. Also keep in mind that if you fund account with $25k total, and then have a losing trade (even overnight in a trade you don't close), you will be below the $25k threshold. Don't run it too close unless your win rate is 100%.
  4. 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

    You're correct, I misspoke. And it does appear you can get margin on a CD, but as Galt points out it has risks associated with it.
    If you daytrade in a cash acct, what are the benefits? If the goal is to not have the T+3 how does that work in a cash acct? Will they let you use unsettled cash for trades, and if not what's the necessity for day trader status?
  5. LongArm

    LongArm Member

    I'm pretty sure that the $25k required for a "day trading" margin account has to consist of cash or MARGINABLE securities, and according to Scottrade, CDs are not marginable.

    Yes, you can day trade in a cash account, but only to the extent that you don't violate T+3 settlement restrictions...which apparently is the problem to begin with here.

    Some options that I see would be to open a margin account and leave $20k in cash (to earn a pathetic amount of interest) or put the $20k into treasuries or high-quality corporate bonds or a short-term bond ETF...something like that.
  6. Galt

    Galt Member

    Well, as far as day trading in a cash account with T+3, it can happen. It all depends on the size of each trade. If someone is doing $2,000 "lot size" with a $6k account, you can do 3 trades, wait three days and do three more. Or lets say someone has $25k, but does not wish to expose more than $5k to day trading. They could do $6k worth of trades every day in a cash account, or even do 25 $1k round trips in a day, and then take 3 days off while everything settles.

    I agree it is not the easiest way, but we were talking about requirements, not intelligence or simplicity.

    Sorry for all the obvious detail, it is late and I just got on a roll.
  7. stickyrussell

    stickyrussell New Member

    WRONG. It is absolutely fine to day trade as much as you want. The day trade rule exists to protect the brokerage house & it is enforced by the brokerage houses & I have yet to hear of a brokerage house that enforces it on a cash account. Call your brokerage house and see for yourself. When I initially called mine about this, the guy said a big fat NO. He just kept reciting the rule about margin accounts to me. Then, after being on hold for 20 minutes while he checked, he came back on the phone & apologized... said it was fine.

    There is no reason you can't day trade on a cash account (unless your brokerage house are jerks). It's impossible to go in to the negative. Actually, when I trade, I will make sure all my $ is spent on positions + commissions. Then, with a 0 cash balance, sell my positions... they don't charge me the fee when I sell (since there's no cash) & I only pay 1 commission per trade!
  8. LongArm

    LongArm Member

    I think we've SAID it's okay to day trade in a cash account. The difficulty for many will be doing it and not ending up with a freeriding violation.
  9. ArkhamB

    ArkhamB Member

    Just to jump in here...
    I kinda got burned because I got a warning about a round trip and I was afraid to close a position, ended up losing money.

    If you are categorized as a day trader, is the 25k just the minimum value your account can have at any time, including stocks you own?

  10. indexphp

    indexphp New Member

    I just took a quick look at the site, and cant find any information about the 25k minimum, but I guess it would probably exclude the stocks you currently own.
  11. LongArm

    LongArm Member

    The $25k includes holdings + cash, minus whatever you may owe the broker.
  12. 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

    Actually it includes the stocks you own provided they're in the same account.

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