Online Day Trading - Formula You Must Know

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You call yourself a day trader by trading stocks, options, commodities, or futures online. Are you familiar with the requirements of online day trading? This query comes up several times in our user's camp. Now, if I unintentionally (or knowingly) go against any of these rules, what comes about?

Several variations of actions can take place that may start online day trading. I will try to provide answers for most of the questions. As each condition varies, I will state the most frequent.

Online Day Trading

In this article we are only discussing online day trading as it relates for stocks and options vs commodities and futures. Online day trading rules for commodities and Futures are are not the same as stocks and options. I have no idea about other trading disciplines. You will learn day trading inside functions.

Buying and selling of stock, option, future, or commodity on the same day constitute online day trading. An example is, if you buy 1000 shares of stock ABC (fictitious symbol) at 9:30 am and sell the 1000 shares of stock at 12:15 pm, you have just carried out online day trade.

Pattern Day Trader

From the Exchange Rule 431 (Margin Requirement), a pattern day trader is any customer who performs 4 or more same online day trades within any 5 successive business days and your online day trading activities are higher than 6 percent of your total trading activity for that same 5 day period (from FINRA web site). The margin requirements for commodity and future trading is much different.

Day Trading Rules for a Day Trading System

1. The equity in your trading account must be maintained over $25,000 to be able to trade and not run into difficulties.

Futures and commodities offers much more leverage, one can trade with $500 margins per contract.

2. For accounts under $25k, when you buy and sell similar stock in the same day, any earnings from that stock's deal cannot be utilized in another trade on that same day. This may also depend on each brokerage account.

Trading futures and commodities allows one to trade funds mulitiple times in a day.

3. Only 3 trades are permitted within one week (five trading days). By the fourth day of trading, you will be given a 90-day suspension of all trading activities.

This does not apply to futures and commodities. A online day trader can trade mulitple times in a day with no restrictions.

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

1. You may get a 90-day suspension of all online day trading activities.

2. Your account can be suspended for ninety days and no trading will be permitted in that account.

Staying away from Problems

1. A bare minimum equity of $25,000should be maintained in your trading account.

2. When you have an account with less than $25,000, never buy and sell a position within the same day. You must preserve your position until the following day.

3. If you buy and sell similar stock/option in the same day, never go into a new trade where the funds from the sale of the stock just sold will be utilized to acquire a new position.

4. If you have procured a position from funds from a previous same day sell, it would be wise to keep that position overnight.

5. Day trade activity should not be carried out more than twice per week.

These are the trading rules I have encountered through the years I have been trading. You can also explore the World Wide Web for in depth information on online day trading and pattern day trader. A good source is Wikipedia.

I have used accounts with less than $25k and have never had a 90-day suspension canon applied, but have had numerous notices about a trade that may trigger the 90-suspension rule. When this comes about, I just reschedule trading and will pause till the next day. Good luck in your trading...

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