- Be careful trading $1 stocks, seriously. 1600 shares on a $2000 account in any stock is very risky.
- I would recommend a brokerage like IB for retail, if you are actively trading. You may not have the funds for an IB account but your commissions are a whopping .9% or so of your account for each trade. That is unsustainable, and your commissions alone at that rate will eat you alive. You mathematically cannot win with this fee structure if you are taking one or more trades per day. If your account grows it will be less as a percentage, but until that point it will be very difficult to grow.
The following user says Thank You to josh for this post:
I don't seek out low cost stocks, I seek out what's making good percentage gains whether they're a buck a share or 300 bucks a share. It's only the percentage I'm after, nothing else. I'm looking for a steady upward mover at a high rate of movement. And I hope to be in and out in minutes.
In this case I was in and out in 10 minutes and 9 seconds.
At 10 dollars per trade, I have to make 20 bucks to cover the fees. (I'm currently paying 7 each, which will go away after I've made 25 trades as the first 25 are discounted.)
If I have to make 20 bucks to cover my fees, then with an account of 2000 dollars to trade I have to pull in more than 1 percent to break even.
At 10000 dollars then break even happens at 0.2 percent yield.
I'm going to switch my brokerage over to Tradeking, and cut my commissions in half, in the near future. But not just yet.
Well, techncially I can't attempt a repeat in the same day due to SEC Rule T. The unsettled funds rule.
When you sell a security, the funds don't settle for three days. While you CAN buy another security with those unsettled funds, you can't SELL it until AFTER the funds have settled from the ORIGINAL sale. That would be "free riding" and a violation of the rules.
If you do, you violate rule T and get a 90 day cash only restriction on your account, so you can't use margin for 90 days.
But I do wonder, does that even matter on a cash account basis? Violating Rule T will restrict you to cash transactions, but does that restrict you from using unsettled funds to make those additional transactions?
Is there an additional level of penalty for continuing to violate Rule T, accepting that it keeps you from trading on margin?
In short, is it REALLY a bad thing to violate Rule T if you weren't intending to use margin anyway?
I'm not planning to experiment and find out. At this point in the game, I'm doing exactly what I'm comfortable
with and so far I can't express displeasure with the results.
Yeah, these days, in the digital age, there isn't any RATIONAL reason to even have a settled funds rule. The electronic transaction should simply be made, then verified instantly, and then considered settled.
But then it would be just that much easier for someone to keep making trades until he's had enough, profit or loss.
No doubt that WOULD stir up the markets quite a bit and certainly add enormous volatility.
But now, your brokerage can hold your money in a potentially profitable money market account for three days while
funds settle, and when you add up the money in unsettled funds at a major brokerage, that represents a respectable sum of money to be made off of the money market. So why wouldn't the brokerages want to preserve the status quo?
The pattern day trading rule can be avoided by using multiple accounts. I think... Use account A on Monday and Thursday, use account B on Tuesday and Friday, and use account C on Wednesday.
At some point I hope to be doing exactly that. Multiple accounts with different brokerages, allowing me to trade every day.
I still intend to be playing "all in" with any given account on any given day I choose to trade. But at some point,
IF my fund grows the way it MIGHT, then I'll have to give consideration to the size of my trades relative to the
activity of that particular stock. It's fine to be a drop of water in the bucket, but I don't want to be the bowling
ball dropped into the bucket. I can't see that it would improve my chances of making a profit if I place trades
worth a significant percentage of the day's total trade value.
"Today's volume for ABC was 2 million shares traded, of which 1 million were traded by one particular idiot
day trader who got taken to the cleaners as a result of his stupidity. Film at eleven."
Never trade so big that you move the market on your own. If you're NOT a market maker, don't try to BE a market maker.
I hope that's an issue I have to contend with at some point.
Last edited by Carrerain4; July 26th, 2014 at 08:44 AM.
Me and a lot of other small retail people, 15 years back where making a lot of $$$'s, I was full time for 8months until the first rule basically ruined it, there rules to protect us are rules to stop us taking there money, I'm 99.999% sure of it.
Then ofcourse the big players with 25K with 400% intraday margin basically all handed over there money because of the margin and they went in big, blew it and walked away, where as retail, lost a little kept plugging at it, until they started to make a little on mass = A LOT!!