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Strategies & Market Trends : DAYTRADING Fundamentals
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To: shneed who wrote (10026)9/2/2000 10:30:12 AM
From: Wayners  Read Replies (2) of 18137
 
Rule 2520 is there to eliminate free riding by day traders that don't hold positions overnite. Reg T. is only calculated at the end of the day so before rule 2520 you could theorotically accumulate an intraday position way in excess of normal margin requirements provided you closed the position(s) by the end of the day. Rule 2520 makes you get whats called a day trading margin call if you exceed twice your buying power at any one time during the day and lose money on the day but close out the positions before the end of the day. The amount you have to pony up is equal to the amount of your losses for the day. If you make money you are okay. Trading numerous stocks repeatedly where no instantaneous combination of positions exceeds twice your buying power will not invoke a day trading call. I've received daytrading calls, always because i was trading a non-marginable IPO with other stuff. You'll get a call from the broker within a few days after the incident and they'll give you 3 days to send in the money. Since you're really sending in the money after the fact, the rule just forces you to prove you had the money to cover the trades. The money has to stay in the account for three days or until the trade clears then they can send the money right back to you. Rule 2520 is quite different than a Reg. T call where you exceed twice your buying power and hold the position overnite. Rule 2520 is also quite different than getting a maintenance margin call where your broker will sell positions for you if you don't send in the money. With a Reg. T or rule 2520 call, sell positions will not satisfy the call. Your broker will not sell any of your positions. However if you don't send in the money--you will get your account closed and you might not be able to open another brokerage account.
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