(EDIT: I ADDED AN EXAMPLE OF 1 ONE OF THE WAY HOW YOU CAN GET RESTRICTED READ PLEASE)
Daytrading on Public - The small differences that matters, how you do it properly without getting restricted, and the other crucial information needed!
Straight to the point day trading is when you buy and sell a stock the same day, Simple.
TO DAY TRADE WITH NO ISSUES THE SEC REQUIRES YOU TO HAVE $25,000 IN YOUR ACCOUNT AT ALL TIMES
The reason why is because day trading is done on margin, aka borrowed money. "But why Spider, why is the money borrowed when the money is in your account?" It's because it takes about 1-2 days for the trades to clear each time you buy and after you sell, and day trading is done so frequently that waiting 1-2 days for the trades/money to clear while allowing more trades to be done is extremly risky for the firm/broker to just take the persons word that money will be there, so this is why the $25,000 is suppose to be in the account at all times and then trading is done on margin even though the money is borrowed the firm/broker isnt really risking their money because the 25k is there to cover it.
PUBLIC LIFTED DAY TRADING RESTRICTIONS SO I CAN DAY TRADE NOW RIGHT?
eehhhh no. but yes. but no.
This is where it's going to get a bit confusing so follow along as best as you can. You will no longer get restricted on Public for doing daytrades BUT the SEC can still restrict you and you can also still get restricted for other violations. IF YOU WANT TO DAY TRADE ON PUBLIC YOU NEED TO KNOW THESE 2 TYPES OF VIOLATIONS and AVOID DOING THEM
FIrst you need to know UNSETTLED CASH
UNSETTLED CASH is money that comes from deposits, selling, wires, etc you have to wait at least 1-2 days for the transaction to clear. Once it clears your UNSETTLED CASH will turn to WITHDRAWABLE CASH. If you arenāt restricted then youāre given BUYING POWER while UNSETTLED CASH settles, which if you are restricted thatās the drawback.
1. GOOD FAITH VIOLATION- this happens when you sell a stock causing your account to have UNSETTLED FUNDS (which is ok), now if youāre not restricted youāll be givin BUYING POWER as well, so you buy another stock the same day and then the next day you decide to sell that stock while the UNSETTLED FUNDS havenāt cleared yet. For example you bought $100 worth of shares from $TheCompany last week and TODAY it went up to $110 and you decide to sell all of it. So youāre given the $110 as BUYING POWER (but itās still UNSETTLED CASH) and use the $110 to buy shares from $TheBusiness TODAY.(this is still fine to do) Now the NEXT DAY $TheBusiness stock went up to $120 so you decide to sell it. This causes a good faith violation because you needed to wait first for the UNSETTLED CASH to clear(takes at least two days) before selling $TheBusiness.
3 violations in 12 months and you get RESTRICTED for 90 days aka end up in Public Jail.1 more after that and thereās a chance all your stocks will be sold and your Public account closed for 90 days. But donāt blame Public for this, their clearing firm has made it Policy so thereās no way around it.
2. FREE RIDING VIOLATION- Itās almost like a GOOD FAITH VIOLATION only the difference here is that instead of selling a different company you go and buy the same company again and the next day you sell it again at a higher gain. Example, you bought $100 of $TheCompany last week and sold all $100 today. Still today you then use that $100 to buy $TheCompany again, and then tomorrow $TheCompany goes up to $200 and you decide to sell it to take the gain. Basically this isnāt ok because you shouldnāt have been able to make that money because you technically didnāt have the money cleared yet meaning the money was UNSETTLED CASH you just were given buying power āon the faithā that you were going to wait to let the cash settle. Like before after 3 strikes youāll end up RESTRICTED or as we say Public Jail for 90 days.
HOW TO DAY TRADE WITHOUT $25k ON PUBLIC THEN?
If there's a loophole i'll find it, and this is how to day trade on Public, there's DAY TRADING and then theres PATTERN DAY TRADING. You want to make sure you're doing DAY TRADING, and its not like oh awesome i can do it all the time but hey at least it's some day trading right?
While making sure you avoid the 2 violations i explained before you also need to make make sure you only do 3 day trades within 5 business days with settled funds only, on the 4th day trade you'll be marked as a PATTERN DAY TRADER and will be restricted.
3 DAY TRADES WITH SETTLED FUNDS WITHIN 5 BUSINESS DAYS!
You can do 3 and the 4th one within 5 business days will get you tagged as a pattern day trader.
You need/want to avoid being tagged as a PATTERN DAY TRADING IF YOU DON'T HAVE $25,000 IN YOUR ACCOUNT.
You need to make sure you always use SETTLED CASH so you don't run into other violations that will get you restricted.
(NEW EDIT)EXAMPLE: You decide to sell $100 of the $The Company today which gives you $100 in buying power, You cannot use that $100 to DAY TRADE with, because the cash is still unsettled, even though you have buying power you still can't use it for a day trade since you are only allowed to use SETTLED CASH for day trading unless you want to get restricted. You have to wait for it to clear before using, after it clears you are allowed to use that $100 to day trade with, if you havent done 3 already within 5 business days
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