Today’s trading tool tip is about the Day Trading counter, which you will only see if you are actually making Day Trades. It’s bold and red and hard to miss, but it’s important you know the facts about Day Trading.
What is a Day Trade?
A Day Trade is a single option or stock position that opens or closes during the same day. A good rule of thumb is that any trade held overnight is not a Day Trade. Simple, right? A few more important details.
1. A sell to close (buy-in) of an existing position will be treated as a liquidation and the subsequent repurchase (sale) will be treated as the establishment of a new position. These trades will not be subject to the rules affecting Day Trades. Any other trades in the overnight position will be considered a Day trade and subjected to Day Trading rules.
Huh? All this means is that if you close something completely and then buy more of it, you aren’t making a Day Trade.
2. An account is considered a Pattern Day Trading Account if it has more than three Day Trades in five business days. Industry regulations require that Pattern Day Traders must maintain a minimum of $25,000 margin equity.
Day Trading is not necessarily a bad thing, but if you are going to do it, you need to have a certain minimum in margin equity in order to mitigate risk for you and your brokerage.
What’s the big deal?
Regulations dictate that if accounts with less than $25,000 of margin equity make more than three Day Trades in five business days, the account holder will be issued zero Day Trading Buying Power on the date the call is issued. In other words, if the account ends the session with equity of less than $25,000, it will have no Day Trading Buying Power on the following day. A Day Trading call is incurred if the account holder exceeds his or her Day Trading Buying Power at any point during a trading session. Receiving multiple calls can lead to a restriction in your ability to trade (and nobody wants that).
The good news.
The folks at OptionsHouse figured asking our customers to keep track of their Day Trades (by fingers, abacus, etc.) wasn’t ideal so we created logic to count for you. Currently, this counter on the preview page of your Trade Ticket will inform you of the number of day trades you have made in the last five trading days along with a reminder about the nature of Day Trading. There are plans to make this counter ever-present in the trading platform, but we wanted to put this important functionality in your hands as soon as possible.
Example (click to enlarge):
If you have further questions or comments about Day Trading or the OptionsHouse platform, check out Steve Claussen’s article, What Everyone Should Know About “Day Trading,” and don’t hesitate to reach out to us at 1-877-653-2500, 7 a.m. to 6 p.m. Central Time weekdays (excluding exchange holidays) or access Live Help from our website.
Photo Credit: JacobEnos
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Tags: Brokerage, Day Trading, Day Trading Call, Online Option Broker, Online Trading Platform, OptionsHouse, Pattern Day Trading, Platform Changes
