How do I avoid "free-riding" SEC violation if day trading?

[GameOver]

If I remember correctly, when you buy and sell stocks there's a two day waiting period for the transaction to clear. So if that's the case, how do people day trade? Is there a way to note yourself as a day trader so that this rule does not apply? How do folks deal with it?

Thanks!

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[GameOver]

Here's a quick example of what I am getting at... say I have a brokerage account with $X dollars in it. I use all $X dollars on Monday to buy stock ABC. I sell it Monday afternoon for a hundred dollar profit. My understanding is that even though my brokerage account has all my money in it, I can't trade again until the original stock settles on Wednesday.

How do day traders deal with this? The only two things I can think of are margin, or only using a fraction of your $X dollars bankroll for any one trade.

Is there a way to shorten the two day window?

 

[ram7os]

You need to hold your capital above $25k to avoid the pattern day trader rule.

 

[daivey]

although the settlement is official in T+ 2 days, the broker settles you the same day cause the money is 100% coming in.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[ADayattheRoxbury]

So if your account is margined you are allowed to day trade without the +2 day waiting period, since you technically borrow money from your brokerage, to make the trades, they don’t need to post to the account you’re trading on.

This does have a HUGE caveat though. Without a $25,000 minimum, you are only allowed 3 day trades (round trip trades) per week (5 day period). Hope this helps!

 

[LiveFire]

So if your account is margined you are allowed to day trade without the +2 day waiting period, since you technically borrow money from your brokerage, to make the trades, they don’t need to post to the account you’re trading on.

This does have a HUGE caveat though. Without a $25,000 minimum, you are only allowed 3 day trades (round trip trades) per week (5 day period). Hope this helps!

Thank you for sharing this. To make sure I am clear. If I buy a stock on Monday, and then had to sell it say on Tuesday because it was a bad trade, from that point on Tuesday, would any remaining funds be the available on Thursday or would it be Friday?

On the remaining day trades, I would then have only 2 remaining for the week, correct?

 

[Abrodos]

If you buy on Monday and you sell on Tuesday that's not counted as a day trade. Day trades need to be bought and sold the same day. If it's a margin account, you don't have to wait. Not sure for the regular account though.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[LiveFire]

If you buy on Monday and you sell on Tuesday that's not counted as a day trade. Day trades need to be bought and sold the same day. If it's a margin account, you don't have to wait. Not sure for the regular account though.

Gotcha! Thanks for clearing that up. I notice that right now my TD Ameritrade account says 3 Day Trades remaining.

 

[GameOver]

Thanks for the replies. I think the answer is, if I have at least $25k in my account and have margins enabled, I can mostly do whatever I want but I'll have to pay a fee for the use of that margin.

If I don't have margin, then I have to pay attention to the 2 day settlement rule... I can buy on Monday up to 100% of my funds and sell on Monday as well. I can even buy on Tuesday, but I believe if I sell on Tuesday instead of waiting until Wednesday when my Monday transactions have settled then I'll be in violation of the free ride rule and could have my account flagged. Does that sound correct?

 

[aquariumsw@gmail]

Thanks for the replies. I think the answer is, if I have at least $25k in my account and have margins enabled, I can mostly do whatever I want but I'll have to pay a fee for the use of that margin.

If I don't have margin, then I have to pay attention to the 2 day settlement rule... I can buy on Monday up to 100% of my funds and sell on Monday as well. I can even buy on Tuesday, but I believe if I sell on Tuesday instead of waiting until Wednesday when my Monday transactions have settled then I'll be in violation of the free ride rule and could have my account flagged. Does that sound correct?

Let me add to this. Today, I was flagged on merrill edge for 'freeriding'. I'm not sure where the glitch happened. I make dozens of trades everyday as I am lucky to have $25k+ in the IRA. The page shows "cash available to invest", cash available to withdraw, and pending settlements, etc. I always use up almost all the cash avail to invest. If I want I sell a few things, or cancel some buy limit orders, then my available cash to trade instantly goes up that amount. I buy with that thru the day. I thought I got in trouble today because it was the same security, IYK, that had a stock split that confused me the night before. Tho, other examples of freeriding use ABC stock and XYZ stock, tho there must be a "buy ABC, Sell ABC, buy XYZ" pattern to this also. I could swear I have bought and sold many holdings the same day, with unsettled funds, and I do not have a margin account. Tho it is rare I buy and sell the same holding in the same day, and there is a wild price swing (rare), and I have only unsettled cash. that is why I was so surprised today. And they expect you to depost a whopping $251 cash to cover the sale, even tho I have $1500 now settled cash available, They want NEW money. Its, an IRA, I am trying to withdraw cash, not add cash.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[chazwazzer]

If I remember correctly, when you buy and sell stocks there's a two day waiting period for the transaction to clear. So if that's the case, how do people day trade? Is there a way to note yourself as a day trader so that this rule does not apply? How do folks deal with it?

Thanks!

Hack #1
No PDT day trade rule if you trade options on futures or futures.

Hack #2
Another way to avoid pdt is by never closing out your trade. This is only a good idea for cash settled options on zero DTE land. For example buy an OTM SPX put fly and when you want to “sell” you buy at the same strikes and expirey an SPX call fly. The flys counter balance each other and you just let them both expire. PDT never goes into effect if you never close position. Again this only works with cash settled products like SPX options.
If you do this with equity options you can get exercised in a way that causes you some problems.


Hack #3
Do not use margin account; instead use cash account. There is trade offs with this but at least FINRA isn’t crashing your party