Wayne,
I would like to know more about this.
So would I, and a lot of other people. I've tried pretty hard to track this issue down, but I keep getting conflicting opinions on the subject, and cannot find a reference to the authoritative word on the subject. The thing I have seen people point to as a reference for the "free-riding" prohibition is found here:
invest-faq.com
IMHO, it is not well written and in places seems self contradictory, but a few statements seem plain enough, and if it is true then there is definitely a limit on how much money you can spend in a day. It is of course an opinion about the rule, not the rule itself. I'm still looking for the rule and would love to have a link if anyone has it.
NYSE Rule 431 forbids member organizations from allowing their customers to day-trade in cash accounts.
If you use cash, note that in a cash account you can spend a dollar only once. That is to say if you start the day in cash, you can buy stock and sell that stock -- and then are done trading for the day. If you start in stock you can sell it, spend the cash for another position, sell that position and then you are done.
I believe (and this is certainly the way my very conservative broker handles things) that your statement but if I hold a stock overnite and sell it--then I cannot use those proceeds until the next day is incorrect. You can use proceeds on the day of the sale if you held the position overnight; you cannot use the proceeds from the sale of stock you purchased that same day until the following day, at least in a cash account.
Perhaps you are talking about a margin account. In that case you may be right that you cannot use the money until the following day. It's another area that is not absolutely clear to me, but the new margin proposal does sound like the buying power for the day is limited to the margin excess available at the beginning of the day, times the multiplier [2x now, and 4x in the proposal]. In that case, proceeds from positions held overnight would not count in your buying power.
Dan |
