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http://daytrading.about.com/library/weekly/aa083001a.htm
New Day Trading Margin Rules
The Securities and Exchange Commission ("SEC") has recently imposed a
number of new margin requirement rules on so-called "pattern day
traders". These new rules became effective on August 27, 2001. The more
important of these margin rules are summarized below:
Definition of a Pattern Day Trader
The new rules apply only to "pattern day traders". The rules define a
pattern day trader as anyone who executes four or more day trades within
five business days, provided the number of day trades is more than 6% of
the total trades in the customer's trading account during that period.
Accordingly, if you make 4 or more day trades over a five day period and
these trades comprise more than 6% of all of your trades during this
period, you will be subject to the new day trading margin rules.
Day Trading Minimum Equity Requirement
The new rules require a pattern day trader to have $25,000 of minimum
equity in his or her account on any day in which the customer day
trades. This minimum equity must remain in the account and cannot be
withdrawn for at least two business days.
Day Trading Buying Power
The new rules increase day trading buying power to up to four times a
pattern day trader's maintenance margin excess. This means that a
pattern day trader may buy securities having a value of up to four times
the amount of excess equity in his or her account. The amount of the day
trading buying power will normally be calculated based on the customer's
account position as of the close of business on the previous day.
Margin Calls
If a pattern day trader exceeds his day trading buying power, the
brokerage firm is required under the new rules to issue a day trading
margin call to cover the amount of the deficiency. Pattern day traders
have five business days to deposit funds to meet this margin call and
the day trading account is restricted to day trading buying power of two
times maintenance margin excess until the call is met. If the call is
not met within the 5 day time period, the account is further restricted
to trading only on a cash available basis for 90 days or until the call
is met.
Sale of Overnight Positions
The sale of an existing long position held from the previous day, or the
repurchase of an existing short position held from the previous day, are
not treated as a day trades under the new rules and these transactions
are therefore not subject to the new margin requirements affecting day
trades.
Cross Guarantees
The new rules prohibit pattern day traders from using cross-guarantees
to meet day trading margin calls or to meet minimum equity requirements.
Each day trading account is now required to meet all margin requirements
independently, using only the funds available in the account.
> Lee Morris wrote:
>
> this is another quesition, I assume this is for trades that involve
> margin, does this trigger if you are not using margin or only buying
> options and what is trigger that determine if you are a daytrader
>
> -----Original Message-----
> From: Todd Horton [mailto:toddao@xxxxxxxxxx]
> Sent: Wednesday, November 07, 2001 1:58 PM
> To: realtraders@xxxxxxxxxxxxxxx
> Subject: Re: [RT] The SEC just regulated me out of a
> job........
>
> On Wed, 7 Nov 2001 11:10:58 -0800, you wrote:
>
> >>I was just informed by my broker that I am fortunate
> enough to meet the SECs rewuirements as a "Day Trader". I
> have been essentially swing trading a small account because,
> well, I dont have enough cash to open a big account. I tend
> to get out of my losers very quickly and hold on to my
> winners for 2 or more days. I thought thats what trading
> was, cut your losses, let your winners run. For example I
> had 2 longs and 1 short going into yesterdays rate cut. My
> short (INTU) was stopped out for a $1.30 loser but one of my
> longs (WEBX) made me $3.50 and another (EBAY) is currently
> up about $2. This of course makes me a day trader although i
> held WEBX for 3 days and have had EBAY for 2 and counting.
> The reason is that about 5 times a week a trade goes bad and
> I have to get out in the same day. My plan is working very
> well, I am up about 5 points this week already and make at
> least a little money almost every week. But because I do not
> have $25000 the SEC has forced! my broker to shut down my
> >>account for a week. I am currently averaging a return of
> about 10 -13%....per month. I think I know the answer to
> this but outside of finding a loan shark.........is there
> anything I can do about this?
> >>
> >>By the way......I am allowed to trade futures and/or
> options. I think I am about 2 for 20 on options trades over
> the years and accept the fact that, at this point, I just
> dont have enough knowledge to make money with them. Or I
> could trade the E MIni S&P, with its margin of 10:1...that
> is obviously much less risky than doing 50 to 100 share lots
> of a stock with a proven method (sarcasm).
> >>
> >>Any help would be appreciated...or maybe I just needed to
> vent a little....looks like I am shut down after making 10%
> most months. I am now going to look for my man Huggy Bear to
> see if I can get one of those 88% (per month) easy payment
> loans.
>
> divide your account into two, use one for 5 trades then let
> it rest
> and use the other account
>
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