Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : DAYTRADING Fundamentals -- Ignore unavailable to you. Want to Upgrade?

To: shneed who wrote (10026)	9/1/2000 7:17:57 PM
From: exdaytrader76	Respond to of 18137

Re: Margin Call I don't know what rule 2520 is, but with us, a trader cannot get a margin call unless he/she carries overnight positions. (Unless I credit his buying power, or something unusual) PM me if you want a more specific answer.

To: shneed who wrote (10026)	9/2/2000 10:30:12 AM
From: Wayners	Read Replies (2) \| Respond to 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.

To: shneed who wrote (10026)	9/2/2000 5:59:09 PM
From: Dan Duchardt	Read Replies (1) \| Respond to of 18137

scneed, I've read the other replies to your question, and I don't feel either of them is completely accurate. I'm not going to address those point by point, but here is my understanding of the CURRENT rules. Reg T governs the amount you can borrow from your broker for positions held in your account each night. The first night you hold a stock, you must have at least 50% of that in your account. For a short you must have 50% in addition to the proceeds of the sale. This is the initial margin requirement. Simplest case.. If you buy a stock worth $10,000, your account value must be $5,000. Reg T allows for the possibility that after you buy a stock, it might go down. If for example that $10,000 stock slipped to $9,000 your account value would drop to $4,000, less than 50%. You can still keep the position, as long as your account value remains above the maintenance margin requirement, typically 25% to 30% of the value of securities held. For longs 25% is as low as you can go, but your broker may require more. I believe shorts require at least 30% For daytrading, you have buying power that is currently twice the value of your account in excess of the maintenance margin requirement, called maintenance excess. If you are flat every night, that's twice your account value. If you hold overnight, it's half your account value minus 25-30% of the open positions. So if you held a $10,000 stock in a $5,000 account, your maintenance excess would be $5,000-$2,500=$2,500 and your daytrading buying power would be $5,000. Contrary to other inputs, whether you make money or lose it daytrading, you are limited to how much stock you can own at any time during the day. If your buying power is $5,000, and you spend $6,000 for one trade (or combination of trades) they you have exceeded your limit and you will receive a 2520 margin call (not Reg T). For stocks you hold overnight, you would think that if you sold all of them in the morning you would restore your buying power to twice the account value. Such is not the case. Any sale you make before buying during the day is treated as a short sale for margin purposes. If you use the cash received from that sale to purchase other securities you can easily generate a margin call. If you don't buy that stock you sold again, you might escape the call if the broker somehow lets that slip by, but if you buy it back there is no way to treat the sale as other than a short sale for daytrading. If you sell and don't buy back, your Reg T buying power is restored, so you can buy other securities. The proposed changes to 2520 include a change in how overnights are handled, and raising daytrading buying power to four times maintenance excess. Dan ED: Well the rest of you were busy while I was writing. OZ did a better job than I did presenting the buy back the overnight situation Message 14320170