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Please help, what is definition of pattern day trader?


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#1 cycletimer

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Posted 08 October 2008 - 09:41 AM

I recently opened a $10,000. brokerage account for my wife to play around with (ETF's). She has bought and sold intra-day several times yesterday and today, and a screen just popped up and informed her that she has placed 4 day trades over the last five days and is mentioning some crap about "pattern day trading." What is the Hell does this mean and how many trades is she allowed. It mentioned restricting her account from margin trading for 90 days, blah,blah,blah. I have an account larger than $25k so I never have any issues with the broker. Please explain this and what we should do, other than funding her account with more money. She's doing well but I want to "baby step" her into trading. She actually hot as a roman candle with this new venture and she is forsaking cleaning our house to day trading.... Have I created a monster?

#2 traderpaul

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Posted 08 October 2008 - 09:48 AM

http://en.wikipedia....tern_day_trader
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#3 Darryl

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Posted 08 October 2008 - 09:49 AM

From Wickipedia: Pattern day trader is a term defined by Securities and Exchange Commission to describe a trader who executes 4 (or more) day trades in 5 business days, provided the number of day trades are more than six percent of the customer's total trading activity for that same five-day period. http://en.wikipedia....tern_day_trader

A FINRA (NASD) & SEC rule that applies to any customer, not only a margin customer but also a cash account holder, who buys and sells a particular security in the same trading day (day trades), and does this four or more times in any five consecutive business day period. A pattern day trader is subject to special rules. The main rule is that in order to engage in pattern day trading you must maintain an equity balance of at least $25,000 in a margin account.[1]

I'm sure some other members can give you more information.

Darryl

#4 securelstmile

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Posted 08 October 2008 - 09:50 AM

I recently opened a $10,000. brokerage account for my wife to play around with (ETF's). She has bought and sold intra-day several times yesterday and today, and a screen just popped up and informed her that she has placed 4 day trades over the last five days and is mentioning some crap about "pattern day trading."
What is the Hell does this mean and how many trades is she allowed. It mentioned restricting her account from margin trading for 90 days, blah,blah,blah.
I have an account larger than $25k so I never have any issues with the broker.
Please explain this and what we should do, other than funding her account with more money. She's doing well but I want to "baby step" her into trading. She actually hot as a roman candle with this new venture and she is forsaking cleaning our house to day trading.... Have I created a monster?



Call your broker. Explain that you made a mistake trading too much due to volatility. You get a one time exemption. Just don't do it again.
The harder I work, the luckier I get.

#5 skyymaster

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Posted 08 October 2008 - 09:58 AM

If you remove margin then that restriction will be removed. But, she will only be able to trade within her balance limts.
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#6 OEXCHAOS

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Posted 08 October 2008 - 10:01 AM

Hey, good stuff here, guys! I'm moving the topic to Investors University, but leaving a link here in Fearless Forecasters (in case anyone gets confused).
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#7 FRM

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Posted 08 October 2008 - 03:48 PM

If she switches from a margin account to a cash account, don't forget about Reg. T and its prohibitions against "free-riding" either! The "no free riding" restrictions of Reg T prevent you from selling (not buying) securities with funds that are not yet settled in your cash account (IRAs, for example, are always cash accounts, so you have to be careful there!). To illustrate - with her $10,000 cash account, your wife buys 1000 shares of ABC Stock at $10 (let's assume all commissions and fees are zero) and she sells it for a $1000 gain. With the $11,000, she buys 1000 of XYZ Stock at $11 before the ABC trade settled. She will not be able to SELL the XYZ stock without violating Reg. T until the settlement date of the ABC sale. Usually, a broker will let you slide once if it was a "good faith" violation, but they don't have to and could freeze your account for 90 days (usually, you can open a new one without much hassle unless you are a repeat offender). IMHO, a margin account is always better since you can set sell stops and not have to worry about violating Reg. T if the trade goes against you, but then you have to either fund it with $25k if you'll fit the definition of a pattern day-trader or just stay outside the boundaries of the definition (if you can do it).

Edited by FRM, 08 October 2008 - 03:51 PM.


#8 Russ

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Posted 08 October 2008 - 03:55 PM

She could trade stuff as much as she wants on the TSX in Canada with 10k or less.
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#9 Rogerdodger

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Posted 01 April 2014 - 12:21 PM

My favorite "Free Riding" was years ago with E*Trade. Somehow a mistake was made and at the end of the day I got a notice that my little $13,000 IRA account bought $100,000+ of a biotech stock. I panicked and the school girl at customer service giggled when I told her of the problem. I put in a sell order the next morning and made a couple of grand by accident. I never heard another word from E*Trade. I bet somebody was really mad that their order was not filled.