Is day trading right for you ?

You call yourself a day trader by trading stocks, options, commodities, or futures online. Do you have any idea on the conditions of online day trading? This query comes up numerous times in our user's group. Now, if I inadvertently (or knowingly) defy one of these rules, what takes place?

Several variations of actions can happen that may start online day trading. I will do my best to answer most of them. As each situation is different, I will include the most widespread.

Online Day Trading

In this article we are only discussing online day trading as it relates for stocks and options vs commodities and futures. Commodities and Futures do not have the same online day trading rules. I do not know about other trading disciplines. You will learn day trading inside functions.

When you buy and sell a stock, option, future, or commodity on the same day, that is online day trading. You have just accomplished online day trade when you buy 1000 shares or contracts of ABC (fictitious symbol) at 9:30 am and sell the 1000 shares or contracts at 12:15 pm.

Pattern Day Trader

A pattern day trader is defined in Exchange Rule 431 (Margin Requirement) as a customer who accomplishes 4 or more same online day trades within any 5 successive business days. Further, your online day trading activities are higher than 6 % of your total trading activity for that same 5 day period (from FINRA web site). These margins do not hold when trading futures and commodities, the differ per each broker.

Day Trading Rules for a Day Trading System

1. Maintain the equity in your trading account over $25k so you can trade and not come upon setbacks.

When trading futures and commodities, these margins can be as low as $500 per contract.

2. Any income from the stock's sale cannot be used in a new trade on the same day when buying and selling similar stock in the same day for accounts under $25k. This may also hinge on each brokerage account.

In converse, futures and commodity trading allows a trader to trade multiple times in the same day using the same funds.

3. You are allowed only three trades within one week (5 trading days). You will be given a 90-day suspension of all trading activities if you still engage in trade on the 4th day.

The opposite is true when trading Futures and Commodities. A trader can trade multiple times in a session with no limits.

Penalties with Stocks and Options. The importance of a day trading course.

1. A 90-day suspension of all trading activities may be given.

2. Account suspension for ninety days may be given such that no trading will be allowed in said account.

Avoiding Problems

1. A bare minimum of $25k equity should be sustained in your trading account.

2. For accounts under $25,000, never buy and sell a position in the same day, preserve your position overnight.

3. When buying and selling the same stock/option in the same day, do not enter into a new trade where the monies from the sale of the stock just sold will be utilized in the purchase of a new position.

4. If you have obtained a position from cash from a former same day sell, it is best to preserve that position until the next day.

5. Accomplish day trade activity up to just three times per week.

The trading rules I have offered here are the ones I have stumbled upon over my years of trading. Complete info on online day trading and pattern day trader can be acquired by surfing the Web. Wikipedia can be used to find such information.

I have used accounts with less than $25,000 and have never had a 90-day suspension canon applied, but have had more than a few warnings about a trade that may trigger the ninety-suspension canon. When this ensues, I just suspend trading and will wait till the following day. Good luck in your trading...