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I am trying to become a daily trader. Generally, I buy and hold them for a while before dumping them. But with the market becoming so volatile, one can easily use it to his advantage. But with the discount brokers, the funds wait to get settled for 3 business days.
Buying and selling before it gets settled can be a free ride. How do you avoid that? Thoughts?
I'm pretty sure you just have to buy into a margin account with most of them and you have that ability as well as some others like shorting stocks. I don't know what the rules are for that...probably some cash on hand in a money market account or possibly paying slightly more for certain trades.
I am trying to become a daily trader. Generally, I buy and hold them for a while before dumping them. But with the market becoming so volatile, one can easily use it to his advantage. But with the discount brokers, the funds wait to get settled for 3 business days.
Buying and selling before it gets settled can be a free ride. How do you avoid that? Thoughts?
Gotta buy on margin. Be careful-- this can be dangerous!
To date,anytime I get a 'speeding ticket', I call the active trading desk of my broker,tell them there exists other firms where my money might be better appreciated,they apologize and cave.
Yep, just need to open a margin account. The federal minimum to open one is $2k, but some brokers make their minimum higher. You don't need to USE your margin if you open a margin account--many traders open them for the sole purpose of avoiding settlement issues. If you don't use your margin, it's no more "dangerous" than using a cash account--and no more expensive in the way of fees, etc.
The thing to be aware of in a margin account, however, are the pattern day trading rules. If you're going to be day trading regularly (4 or more times in a 5-business day period), you'll be tagged a pattern day trader and need to maintain a minimum of $25k in your account. This only applies to DAY TRADING, which is the opening and closing of the same position on the SAME DAY. You can do as many OVERNIGHT trades as you like with no problem (and no minimum account balance).
Not sure what a free ride trade is but my scottrade will allow me to trade before funds settle but it gives a warning message and calls it a free ride trade.
A free ride is when you SELL something that you haven't technically PAID for yet. Example:
Monday you sell XYZ. This trade will settle 3 days later (on Thursday).
Tuesday you buy ABC with those unsettled funds. This is permitted, but you may get a "be careful" warning.
Wednesday you sell ABC. This is a free ride violation because you sold ABC before it was paid for. It will be paid for on Thursday when your sale of XYZ settles.
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What is a free ride trade?
