hopefully you won't have to "relearn" it when market decides against you one time - imagine you now got only ~200 shares, get the other 4800 later somehow and then the stock starts dropping like crazy. Who's willing to buy your shares back, then? ^^
Just something to be aware of, which is one of the reasons why lots of traders dont do pennystocks..
GL anyways for your journey, I'll stick around
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There's also the "pattern day trader" rule with margin accounts. More than 3 day trades in a 5-trading day period, and you'll need to keep $25,000 equity in the account. That may or may not be an issue, but it's intended to stop day trading with smaller accounts.
Wait....as I understand it, the 3 day rule applies whether you have margin or not, whether you are a pattern day trader as defined, or not.
The only way you can make another trade without the 3 day wait is if you have cash on hand that wasn't used in the last trade, so I guess that would be the 25K equity you're required to have as a pattern trader. Is that right?
OK, this can be confusing, but there are two different things here. The actual cash settlement is one thing, the pattern day trader rule and the 25K requirement are another.
(Nothing I'm writing about here applies to futures trading; only to stock and stock options.)
All settlements on stock or options on stocks, whether you have a cash account or a margin account, take three trading days. That means that you don't get clear funds for three trading days, no matter what kind of account you have.
If you have a margin account, the broker will generously advance you the funds before the actual settlement.
That will cost you, because it's a loan and the broker is not really generous. But you will have tradeable funds available to you. The broker is taking your unsettled cash as collateral, essentially.
If you don't have a margin account, you will have to wait until the funds actually settle, and you have actual cash to work with. So, you will not have tradeable funds until you have settled funds.
Now, the pattern day trader rule is not the same thing. If you have a cash-only account, there is no pattern day trader rule, because you cannot buy until the funds from your last sale have settled, and you have real money. You can't, therefore, do day-trading beyond your actual settled funds. So in-and-out trading is sort of tough, which was the idea (it was instituted, as I recall, after the "dot-com" runup and bust in the late 1990's, when many stock day traders on margin went under.... the concern by FINRA was that the brokers would go under too, since the brokers would be liable for the settlements if their customers couldn't make good, which is why the change was put in. Past history.)
If you have a margin account, you can do day trades with the unsettled money, due, of course, to the broker's generosity. But if you do over 3 in a 5-day period, you run into the "pattern day trader" rule -- they have defined you as having a day-trader "pattern" on the 4th day-trade out of 5 trading days, and they will require you to have enough clear equity in your account to equal $25,000 -- securities or cash, they don't care, so long as it is owned outright (if securities) or is settled cash.
So yes, you're right, there is a 3-day clearance period, and it does apply to cash accounts. It is not the same as the "no more than 3 day-trades in 5 days" rule that defines you as not a pattern day trader. The $25K equity rule only applies to margin accounts, where the customer has been designated a "pattern day trader." You are also right that "The only way you can make another trade without the 3 day wait is if you have cash on hand that wasn't used in the last trade," assuming you have a cash-only account. The 25K number does not apply to you at all in that case, since you are not on margin.
The Wikipedia article I referenced is pretty clear on all this; you can also dig into the actual regs, which I did when I was trying to figure it out, way back when. But, while there are some nuances, what I've outlined is pretty much what it's all about. Here's the reference again: Pattern day trader - Wikipedia, the free encyclopedia
Now, for better or worse, day trading futures, which most of the people on futures.io (formerly BMT) probably are doing, is completely different. You can use the proceeds of one trade the instant it is closed. In-and-out trading is the norm, and does not wait for any settlement period. Of course, the extreme leverage of futures trading presents its own challenges, which is another story.
I hope this response was not too long-winded, but these are details that a person needs to know about, I think, when going into these markets.
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"If I lost my OWN money, that's not really such a big problem. But if I borrowed money and lost THEIR money, too,
well, THAT would be a problem."
Trust me, you're NOT going to lose any of THEIR money
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I'm new here and I don't trades stocks, although I'm looking into it, I've noticed a few things you're doing, that may help you down hill. I read the whole thread and you seemed to think that some posters were mean to you, but I think they were just frustrated with your approach and your unwillingness (blindness is a better word) to change your mindset.
1. You need to give the answer to why on all your decisions. For example: You bought msft at 44.05. Why did you buy it there? You went long, so you must think the price of the share will go up. Why do you think it will go up? Is Microsoft working on the next software magic that will have everyone craving for the new product? Or is some fundamental news about to be reported and your research shows that whenever that news comes out Microsoft shares skyrocket?
You need to know why you enter there, where you want to exit, why you want to exit there and where you will ultimately take a loss if the price goes against you. Which brings me to point number 2.
2. The only way you will know why you want to take those actions is because you have extensively researched the behavior of the market and stocks. You need to go years back and look at the behavior of the stocks in certain economic conditions, earnings reports, etc. You should also look at the chart and see how much a stock normally moves in a day, 1 minute, morning, afternoon, Easter, Christmas, Summer, Winter, etc. It will give you a clue how much returns you can expect and not like you are doing now "hoping" it will go to your predefined percentage.
3. From your research you will notice that certain stock have similar behavior.
4. You should also pick one or two industries and stick to those. Doing research for all industries is almost impossible if your goal is to trade and not be a researcher.
5. Define your rules based on your research and when you have them, then you scan for stocks that meet your criteria. Don't get married to a certain stock. Sometimes stocks move, sometimes they're flat. You always talk about certain stocks it seems like your married to them. You shouldn't be married to a broker either. Get the love and the emotion out. There is no place for it in trading. If they're expensive, if you could have made more without them, dump them and move on.
Finally, read and learn it seems like you have a long way to go and you will get there faster if you know what you're doing. Right now, your strategy seems to be enter and hope for the best and it's a recipe for failure.
I'm sorry if my post is a bit too long and I hope you don't feel offended by my comments.
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So I guess i understand the pattern day trading and 3 day settlement rules pretty well. Good. It makes it less likely
that I will run afoul of them.
I understand that I need to develop good reasons for my picks. And be able to articulate them. Also good.
I understand that I need to not get attached to any particular brokerage or securities. Good again.
I'm just not comfortable with the idea of taking risks with a broker's money. Not yet. I don't ever want to get into a margin call situation and one way to avoid that risk is not to borrow money from a broker.
As for futures trading, right now it's scary enough trying to predict what's going to happen to any given stock TODAY alone. The idea of trying to see farther into the future and put money on it is positively alarming. So at least for the time being, futures trading is not for me.
Particularly when I don't understand it in any meaningful sense anyway.
Stocks, I understand. (That doesn't mean I know where they're going to go.)
Options, I SORT OF understand but I have many questions that I'll ask at some point, and I'll ask the one that's foremost on my mind right now:
To what extent can I dictate the conditions of an options trade? For example, let's say that I have a firm belief that
SEAS will hit 60 dollars per share in three months. (No, I don't actually think that.) Can I buy an option to buy SEAS
at 25 dollars per share in three months? Or at any other value that I choose? Or is my selection limited by others?
Futures, I understand even less than options. Even if it might be simpler to understand in some respects, it's something that at this moment I have invested zero research time in so I need to avoid even thinking about futures until such time as I have some education.
I get the idea (and even here I could be wrong, very much so) that with futures, you're trading in products that have
not been delivered to the marketplace yet and speculating on its value increasing as the product (such as petroleum products) makes its way from production to the retail market.
I have read (and might believe) that a significant reason for the high prices we pay for gas at the pump is people speculating on petroleum futures, driving the price up between the wellhead and the gas pump.
I am surprised that there isn't one oil company that has chosen to not offer its products into the futures market,
and instead value it based on production and distribution costs, without speculators being allowed to jack up the price. I think that if one oil company did this, they would be selling gas much more cheaply than their competitors.
But I could also be getting mixed up between the futures and commodities markets.
When and if I develop any interest in these other markets and forms of trading, I'll make a serious effort to learn about
them before daring to risk a penny on any of them.
A lot included here. Basically, more research would help. (Wouldn't it always? )
Just on a couple of things:
- You can buy an option if someone is willing to sell you one. You can sell one if someone is willing to buy it. In other words, there's a market, and market pricing for different options. So, yes, your "selection is limited by others." You may not be able to buy a given strike price (exercise price) if it's not offered, meaning, if no one is willing to sell it to you..... There's a lot to options, and more research is needed. I expect Wikipedia would help, it usually does.
- Futures. Gee, where to start? Probably Wikipedia would help.
"But I could also be getting mixed up between the futures and commodities markets. " -- The commodities markets are futures markets.
"I am surprised that there isn't one oil company that has chosen to not offer its products into the futures market,
and instead value it based on production and distribution costs, without speculators being allowed to jack up the price. I think that if one oil company did this, they would be selling gas much more cheaply than their competitors."
-- The economic reason that there are futures markets is that producers (originally of commodities) and buyers want to lock in a price for their delivery, and not be subject to future market risk (unexpected fluctuations up or down.) The futures markets allow them to offload that risk to traders who are willing to take it, because they are willing to take on the profit/loss opportunities. The mechanism is less important at this stage of understanding; the point is that futures markets were established to facilitate commerce and are essential to it. That's why oil companies take part in it. Sorry to put it this way, but your question basically implies that oil companies don't understand their own business very well, and in fact that they are fairly dumb. That's probably not right.
Prices for commodities like oil, or for anything else in the world, are determined by supply and demand. "Speculators" cannot set prices, nor jack them up for their convenience and profit. In other words, there's a market....
(There are futures markets for non-commodities as well: financial instruments such as indexes, bonds, etc. The point is still to offload future market risk to someone who is willing to try to profit from being right about it, and accepts the possibility of loss if they're wrong.)
-- It would be good to spend 60 minutes or so with Wikipedia to learn a little bit about these topics, just so you understand some of the context of the financial world that you are a part of, whether you ever have an interest in trading them or not.
-- Given that, you should absolutely not even think about trading either options or futures at this time. The leverage in both is extreme, and you would be amazed at how quickly you lost 100% of your account. By the way, with futures you can lose more than 100%. It may not be clear how that is possible, and it would be understandable if you found it puzzling.... A little more research would clear it all up. And if you're not too clear what "leverage" is and why it matters, well, that's part of the whole topic.
I'm not trying to criticize you, and I hope this hasn't come across that way. There's just a lot in all this, but with Google and Wikipedia and other resources, it is very easy to get clear enough on the basics.
Again, good luck in learning what you need to know, and hopefully in succeeding in your trading.
Last edited by bobwest; August 28th, 2014 at 09:38 AM.
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