The rules are very specific on this. In the notice 98-102 it specifically says that day trading in a cash account should not occur because it may amount to free riding.
My understanding of the proposed rule, and the definition of "pattern daytrader" is that if you don't have $25,000 you will not be allowed to daytrade in a margin account unless you do less than 4 daytrades every 5 days (and not at all if you have been "educated", or have somehow demonstrated intent).
I agree and I think may do more harm to these guys. Lets say I open an account with $10,000 and I know I am not allowed to daytrade, but I am at one of those day trading brokerages or had day trader training because I eventually expect to be able to work my way up to the $25,000---so I figure I am considered a pattern day trader anyways. I buy $10,000 of BAMM and the position quickly goes against me on the first day---but I don't sell on that day because I don't know if it will be considered a daytrade and that I will be subject to a maintenance call of $25,000 - $10,000 = $15,000 that I cannot possibly cover. That would be pretty scary for the uninformed or misinformed. So I hold the position overnite for sale the next day. However by the next day, BAMM has dropped another 20% and I'm out even more money--but at least I am able to sell without getting the $15,000 maintenance call. While if I were this poor guy, I would have sold the postion anyways and told them to get screwed on the $15,000 maintenance call if there was one, because I know the punishment for not meeting it is 90 days of no day trading--which I'm not allowed to do anyways. However what little guy is going to know this? Its obvious to me that their defintion of pattern daytrader has to be changed. Number one you cannot be presumed to be a pattern daytrader based on training alone or broker alone. Number two you cannot be a day trader if you have a cash account or less than $25,000 in equity--but they don't say this in the proposed rules. Seems to me also since they specifically prohibit day trading in a cash account per the 98-102 notice, then how does somebody sell a stock that is going against them on the first day they buy it without that being considered an illegal daytrade?--actually I think I know what the answer is. Day trading in a cash account MAY amount to free riding. In other words if you are free riding in a cash account via daytrading then the daytrading was illegal. A single buy and a single sell would not amount to free riding so that would be acceptable.
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