Text size: aA aA aA A day trade occurs when you open and close a position within a single trading day. These types of trades can include: Are all day trades subject to special requirements? Yes, all day trades are subject to day trade requirements. However, if you make four day trades in a five-day period, you're classified as a pattern day trader and subject to specific margin requirements. What are the margin rules for pattern day traders? The Financial Industry Regulatory Authority (FINRA) requires brokerage firms to monitor pattern day trading accounts, which are subject to the following special margin rules: Here's an example: if you start the day with cash plus firm maintenance excess of $3,000.00, your day trading buying power would be $10,000.00 ($3,000.00/0.30 = $10,000.00). In this example, you can buy 100 XYZ shares for $6,000, and 100 ABC shares for $4,000. When these opening transactions are closed, you are credited back the opening price, and your gain or loss will affect the following trading day's day trade buying power and the current day's buy and hold buying power (a security you wish to hold overnight). So if you sell all your XYZ shares, you will have the full purchase price ($6,000) credited back to your day trade buying power, regardless of how much you gained or lost on the XYZ trade. This is sometimes referred to as "recycle" or "time and tick." If you exceed your day trading buying power with an opening transaction, any trade above the limit will need to be held overnight. If you close the position, you will also receive a day trade call and your account could be put on restrictions. When you purchase securities, you may pay for the securities in full, or if your account has been established as a margin account with the margin lending program, you may borrow part of the purchase price from Merrill. If you choose to borrow funds for your purchase, Merrill's collateral for the loan will be the securities purchased, other assets in your margin account, and your assets in any other accounts at Merrill. If the securities in your margin account decline in value, so does the value of the collateral supporting your loan, and, as a result, we can take action, such as to issue a margin call and/or sell securities in any of your accounts held with us, in order to maintain the required equity in your account. If your account has a Visa® card and/or checks, you may also create a margin debit if your withdrawals (by Visa card, checks, preauthorized debits, FTS or other transfers) exceed the sum of any available free credit balances plus available money account balances (such as bank deposit balances or money market funds). Please refer to your account documents for more information. Before opening a margin account, you should carefully review the terms governing margin loans. For Individual Investor Accounts, these terms are contained in the Margin Lending Program Client Agreement. For all other accounts, the terms are in your account agreement and disclosures. It is important that you fully understand the risks involved in using margin. These risks include the following: If you have any questions or concerns about margin and the margin lending program, please contact the Merrill Investment Center at 855.332.5920. MAP5530218-03292024
What are the rules for day trading? (2024)
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