I think that $25,000 is very restrictive since it blocks you from investing when you are just trying to start your portfolio. Many people simply don't have $25,000 to invest!!!! Also, you may need to have an emergency fund, thus you cannot pluck $25,000 into investing when you need $24,000 for emergencies and have $30,000 in total.

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Aqua

Uncle Billy wrote: >>>Show me the text of the rule which supports your conclusions.<<<

I suppose the proof would be in the doing.   Whether in a cash or margin account, if you buy four pink sheet penny stocks in the AM, and sell them in the PM same day, I believe that such would trigger a pattern day trader flag.  Since I don't wish to be flagged as a PDT, I kindly leave it to Billy to prove this understanding wrong.

Why in the world would anyone play with money that might be needed in an emergency?

 

So I can buy  a  as many stocks one day and then sell them all the next day and  not be considerd a Pattern Day Trader? correct?

You can't find an SEC rule because none exists.   So now you attempt to recast the question in an attempt to cover your error.  As you can easily check the issue here is whether the PDT rules apply to cash accounts.  YOU brought up the issue as to whether they apply to pink sheets stocks.  The fact that you raise this issue illustrates your apparent lack of knowledge of the framework for securities regulation here in the United States.

First, you believe that I would be so simple as to think that since pink sheet stocks are not traded on either NASDAQ or on the NYSE that the PDT rules will therefore not apply to them.  That belief is incorrect and illogical.  The NASD and NYSE  rules apply not only to securities trading on those exchanges but also to members of those exchanges and their customers.    Hence, the PDT rules will apply to both OTCBB and Pinks.  Many securities reg rules promulgated by the SROs broaden their application in this matter.  A current example would be the Manning expansion to all OTC equities, an issue that anyone even remotely connected to trading in OTC equities is aware of.  In a sense you can view it as a back door approach to broadening the apllicability of a particular rule without the need to resort to additional cumbersome rulemaking procedures.

Now let's address the cash account issue which you now insist can only be proven "in the doing".  The fact of the matter is that the both NYSE Rule 431 and NASD Rule 2520, in plain English, state that they are margin rules and apply to margin accounts.  I would have to question whether you have ever actually bothered to read the rules.

When it comes to posting opinions on a forum such as this everyone is entitled to theirs.  When it comes to posting factual information you should at least show people the courtesy of posting on topics where you have at least some knowledge.  I don't post garbage and if I am wrong when posting on a factual issue I have no problem with admitting it.  Having spent many years prior to being an exchange member both interpreting rules and laws and litigating their meanings I realize that you have an obligation to try to provide the truth.  Why mislead people?

Correct, any stock bought one day and sold the next day is not considered a day trade.

Do the SEC Pattern Day Trader Rules apply to options trading too?

thanks.

Uncle Billy wrote:>>>You can't find an SEC rule because none exists.<<<

Oh, really?  Well, the SEC states that Under the rules of NYSE and NASD, customers who are deemed "pattern day traders" must have at least $25,000 in their accounts and can only trade in margin accounts.  http://www.sec.gov/">http://www.sec.gov/

Now, just who is it who are deemed "pattern day traders"?  Zecco states that According to securities regulation you’re considered a Pattern Day Trader if you make more than 3 day trades in five business days. A day trade is the opening and closing of a position during the same business day.

For the sake of factual information, Billy, tell us the source of that securities regulation.

NOW NOTICE, fellow traders, if you are deemed a "pattern day trader" you must have at least $25,000 in your account and can only trade in a margin account. 

So, fellow traders, what do think will happen if you make more than 3 day trades within five business days in a cash account?  That's right: you'll be notified by email, be required to switch the account to margin, and get a call to deposit funds up to $25,000 within 3 business days.

 

Dear preacher, there is nothing wrong with admitting the fact that you did not read or know how exactly the rules are working. I did not know some of the details myself, but I did learn them thanks to you through reading this tread. Please, do not turn this into a personal attack. After all, we are all trying to learn something in these forums, and personal attacks are doing nothing else than making me not want to look at these forums again.

I am sorry if my postings appeared as a personal attack, and the thought that what I said did not reflect the rule concerns me. This is an extremely important issue with major consequences for anyone using a cash account, and I recount the matter for that reason.

I original stated that the SEC pattern day trading rule is applicable whether done on margin of not.

This statement was called in question by one who said the pattern day trading rule only applies to margin accounts, and that lead Zecco-Jon, Zecco.com Associate to say that you can indeed get in trouble if you trade too often in cash accounts, but it's not because of the pattern day-trader rules.

What was overlooked by those who read the SEC rule is that anyone who is deemed a "pattern day trader" can only trade in a margin account, and Zecco states under TRADE and ORDERS (see HELP) that According to securities regulation you’re considered a Pattern Day Trader if you make more than 3 day trades in five business days. A day trade is the opening and closing of a position during the same business day.

Plainly, therefore, the pattern day trading rule is applicable whether done on margin or not.  In other words, if you make 4 day trades within five business days in a cash account, you will be flagged as a Pattern Day Trader, the consequnces of which are detailed under the aforementioned TRADE and ORDERS (see HELP).

My understanding is that the $25000 rule applies to margin accounts only, but you may be tagged as a PTD even if you trade frequently on a cash account. There is just a different set of rules that apply on a cash account, and no one can force you to change your account to margin so that you get a margin call the next day. In fact, I remember a few months ago there was a poster in these forums who claimed he was tagged as a PDT but could trade (both directions) on a cash account without having to put $25000.

This morning I called my rep from one of the firms where I trade.  The question posed is whether a customer can daytrade in a cash account without being labeled a pattern day trader.  After having explained the question to him he answered that the PDT rules do not apply to cash accounts.  After thanking him for the reply I pressed on and asked for the question to be presented to someone in compliance to make absolutely sure that this was in fact the case.  The compliance guy stated that the pattern daytrading rules only apply to margin accounts.  They all seemed rather surprised that anyone would even ask.  They cautioned that when trading in a cash account the customer must not run afoul of the Reg T rules regarding good faith and the free riding provisions.

As a result I stand by my position that the PDT rules only apply to margin accounts.  There are no rules on the subject other than 2520 and 431.  The SEC webpage you rely on is not a rule but rather a part of a compendium of simplified concepts designed to aid retail traders.  As the disclaimer on the bottom of the page states, it is not intended to represent a legal opinion.  Nobody who has any legal experience would even attempt to cite it for that purpose.  Attempting to bootstrap your argument by then getting info from a Zecco page will not get you far in any serious inquiry.

Morevoer, even a cursory search of sources available on the net reveals additional statements both by brokers and in trading forums in accord.  

 

 

So your saying I can trade on an cash account all day until  I run out of money and have to wait to put more in or for the 3 days for the money to come back from and thing i sold?
my friend in the army said he has bought and sold a dozen times in his  cash account on some other service...

Yes to first  ,no to second, margin has nothing to do with it . maybe this helps ;

What is a day trade/round trip?

A day trade occurs when you buy and sell (or sell and buy) the same stock or option position during the same trading day. A trading day includes all pre-market, normal trading hours, and extended session hours. Selling a position held overnight and reacquiring the position the following day is not considered a day trade.

The NASD provides that a pattern day trader is any account that executes four or more round-trip day trades within any rolling five-business-day period, provided the number of day trades represents at least 6% of the total trading activity during the same five-business-day period.

If you are flagged as a pattern day trader, you'll be subject to restitions, including a minimum equity of $25,000 at the start of any day in which day trading occurs. Pattern day-trader accounts that fall below the $25,000 minimum equity requirement and day trading will be restricted to closing transactions only for 90 days, or until the equity is brought up to $25,000.

I'd just like to say that I think this discussion is great and I've personally learned a lot already.   Most of us aren't professional traders, including myself, and learning is always an ongoing process.

One thing to consider is that it is just plain hard to consistently day-trade in a cash account because of the T+3 rule.   Let's say you buy and sell $1,000 of stock in the same day twice on Thursday.   You've just tied up $2,000 for three business days!   You'd need a large multiple of your daily trading amount in cash to cover everything.

To me, it makes sense that you can "daytrade" in your cash account because it's like paying cash for everything.  There is no added risk for the broker or to yourself.   You can only lose what you have in cash.

Here's some more stuff to read.  From FINRA

http://www.finra.org/

"The primary purpose of the day-trading margin rules is to require that certain levels of equity be deposited and maintained in day-trading accounts, and that these levels be sufficient to support the risks associated with day-trading activities. It was determined that the prior day-trading margin rules did not adequately address the risks inherent in certain patterns of day trading and had encouraged practices, such as the use of cross-guarantees, that did not require customers to demonstrate actual financial ability to engage in day trading."

Also check out the definition of free-riding.

http://en.wikipedia.org/wiki/Freeriding