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

To: Apakhabar who wrote (10094)	9/3/2000 5:40:33 PM
From: LPS5	Read Replies (1) \| Respond to of 18137

I think the truth must be that they have their own reasons for discouraging daytraders from holding overnight positions in stocks they trade very actively. The reason is, quite simply, that there are essentially no avenues for exit (remotely orderly liquidiation) should major negatively received news hit a particular issue or, far more importantly, the broad market on a particular day between roughly 8pm EST and 6am EST, or, for practical purposes (of liquidity), between 4pm EST and the following 9:30am EST. Once a broker dealer falls below its' minimum net capital requirement as designated by its' SRO (and depending upon the types of business it conducts, its' capital positions, debt-to-equity ratio, etc.), it has to immediately alert both the SEC and its' SRO (SEC Rule 17a-11), which can result in cessation of business activities. Now, cases where this occurs are very, very rare, and those which do occur go largely unnoticed because the firms are required, at certain points "on the way down" (eating into their capital base) to file early warning notices with their SRO and the SEC, and they either fix the capital problems or go into receivership, at which time SIPC steps in and (an)other firm(s) step in. [Plus, not many people that I know look forward to the monthly SIPC report regarding trustees being appointed to insolvent broker-dealers and the like ;)] But if, in an extreme case, every stock opened at 50% of its' closing price on the previous day, some firms could find themselves far under their minimum required net capital level and effectively 'out of business' at the opening bell. That's my guess, but I'd also suspect that one might additionally find somewhat more liberal clearing practices (while not noncompliant) among larger, more well capitalized firms with extensive avenues of business (banking, capital markets, etc). A larger "cushion" of capital, plus large and diverse streams of cash flow could allow some firms to be more generous in terms of their lending practices, though compliance restricts even the richest firms in their practices. LPS5

To: Apakhabar who wrote (10094)	9/3/2000 7:08:10 PM
From: Tai Jin	Read Replies (1) \| Respond to of 18137

I don't understand how the statement that "overnight positions are not cleared until the end of the day you close them" translates into the broker "thinking" that a morning sale of the overnight position is a short sale. If this were really true, that when you are flat the broker thinks you are short, then is it not logical to assume that if you just buy the same amount of shares again, the broker will now think you have gone from short to flat? Of course, nobody has the experience of buying the shares and being long in reality, and having one's BP reflect a flat position. That's how they do the accounting (at least at Southwest). As soon as you sell your position, the overnight margin is released for use. You can use that margin to trade any other stock. But as soon as you buy that same stock again, you're considered to have reentered your position at a 50% margin instead of 25%. It's a problem of not knowing if these are day trades or RegT trades until the end of the day. So they just treat all trades in a stock as day trades until the final trades that create a net position at the end of the day. The RegT trades are always the last trades in your overnight stocks. I also have a Datek acct and as you say they don't have this problem. They certainly close out positions right away instead of waiting until the end of the day to figure it out. I also think Datek's overnight margin is the same as the intraday margin of 50% (for longs), but I don't know if that has any relevance. ...tai