Question about day trading using Scottrade?

if i buy one or two stocks on a monday will i be able to sell them on tuesday as long as i only purcahse 1 or 2 a week. if i get a scottrade account i will only be making one or two trades a week max. is this ok to do because i heard something about the S.E.C. rule and that you will violate your account if you day trade. can you please help me understand this. Thanks

Public Comments

1. A day trade is when you buy and sell a stock on the same day. You should be ok if you buy on Monday and sell Tuesday. You should be fine with 1 or 2 a week. In fact, you sound like their perfect customer.

2. You can bvuy and sell as much stock as you want as often as you want without violating any rules.
Where the problem occurs is if you don't pay for the trade. For example, if you buy $100 and sell 15 minutes later for $125, you have made 25. But you must still pay the broker 100 by settlement date (3 business days).
To day trade your trades should be in the "margin" portion of your account. Without getting technical, it will free up buying power without waiting for each trade to settle. But it requires $2000 in equity in the account at all times.

3. You can do 4 day trades in any 5 trading day period without having to comply with day trading restrictions/rules. You will not be on margin unless you buy more stock than you have cash available to purchase.

4. The rule you're referring to is the pattern day trader rule.

Wiki has a great explanation.

Definition

A pattern day trader is defined in Exchange Rule 431 (Margin Requirement) as any customer who executes 4 or more round-trip day trades within any 5 successive business days[2] If, however, the number of day-trades is more than 3 but is 6% or less than the total number of trades that trader has made for that five business day period, the trader will not be considered a pattern day trader and they will not be required to meet the criteria for a pattern day trader. [3]

A non-pattern day trader (ie someone with only occasional day trading), can become designated a pattern day trader anytime if it meets the above criteria.

If the brokerage knows, or reasonably believe a client who seeks to open or resume an account will engage in pattern day trading, then the customer must immediately be considered a pattern day trader without waiting 5 business days.

Source: Information Memo of Amendments to Rule 431 ("Margin Requirements") Regarding "Day Trading" [4]

[edit] Requirements and Restrictions

Under the rules of NYSE and NASD, a trader who is deemed to be exhibiting a pattern of day trading will be subject to the "Pattern Day Trader' laws and restrictions, which is treated differently from a normal trader. In order to day trade:

* Day trading minimum equity: the account must maintain at least US$25,000 worth of equity (where equity includes cash and stock, but does not include options or warrants), and traders can only trade in margin accounts for obvious reasons.
* Margin call to meet minimum equity: A day trading minimum equity request is called when the pattern daytrader account falls below US$25,000. This minimum must be restored by means of cash deposit or other marginable equities.
o Deadline to meet calls: Pattern day traders are allowed to deposit funds within 5 business days to meet the margin call
o Non-withdrawal deposit requirement: This minimum equity or deposits of funds must remain in the account and cannot be withdrawn for at least 2 business days.
o Cross guarantees are prohibited: Pattern day traders are prohibited from utilizing cross guarantees to meet day trading margin calls or to meet minimum equity requirements. Each day trading account is now required to meet all margin requirements independently, using only the funds available in the account.
* Restrictions on accounts with unmet calls: if the call is not met, the account's day trading buying power will be frozen for 90 days or until day trading minimum equity margin call is met again.

[edit] Day Trading Buying Power

The rule increases day trading buying power to up to 4 times a pattern day trader's maintenance margin excess. For example, if a trader has $100,000 worth of equities, the leverage ratio is 4:1 meaning that it can buy securities of up to $400,000.

For day trading in equity securities, the day trading margin requirement shall be 25% of either:

1. the cost of all day trades made during the day; or
2. the highest open position during the day.

If a client's day trading margin requirement is to be calculated based on the latter method, the brokerage must maintain adequate time and tick records documenting the sequence in which each day trade is completed. Time and tick information provided by the customer is not acceptable.