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I have some questions regarding the rules surrounding pattern day trading, margin, and day trade buying power and how they interact with each other. Assume to following scenario:

  • The account is a margin account.
  • The account has $30,000 USD in cash.
  • The account has been flagged as a pattern day trading account.
  • The account will be flat at market open and market close every day.

Initially I was under the impression that day trade buying power was simply the equity of the account at previous day close multiplied by 4, and this is reflected as my "Day Trade Buying Power" in my trading software ($120,000). Moreover, I was under the impression that this number is the maximum value of stocks I am allowed to purchase between my equity and my margin. However, I tried to purchase ~$100,000 of SPXL and it was rejected (REJECTED: Your buying power will be below zero ($60,501.87) if this order is accepted.). Since then I have been trying find what exactly is the amount of stock I can purchase and what I have found is rather unclear.

FINRA says this:

The rules permit a pattern day trader to trade up to four times the maintenance margin excess in the account as of the close of business of the previous day.

My broker (TD Ameritrade) gives this in their Margin Handbook (PDF):

Example: An account that has a cash balance of $40,000 and no positions in the account could have access to $160,000 in day trade buying power ($40,000 x 4 = $160,000). - page 6, top of first column

and later on the same page gives this as an example:

Your account has a cash balance of $40,000 and no positions. The day trade buying power, for purposes of this example, is $160,000 ($40,000 x 4 = $160,000).You place two day trades: • A $150,000 buy and sell of ABCD, followed by a $200,000 buy and sell of WXYZ. • The ABCD day trade is within your day trade buying power and will not create a call because the initial buy of the ABCD did not exceed your day trade buying power of $160,000. However, the initial buy of WXYZ was $200,000, which exceeds your day trade buying power by $40,000 ($200,000 - $160,000 = $40,000).

FINRA also has this to say:

In general, under Federal Reserve Board Regulation T, firms can lend a customer up to 50 percent of the total purchase price of a margin security for new, or initial, purchases.

I'm not sure how these all fit together. Questions I have specifically in addition to any extra insights:

  • Stock XYZ is trading at $100/share. What is the maximum number of shares I can purchase XYZ at this price?
  • How is the above number calculated?
  • Does this calculation apply to purchasing multiple different stocks at the same time (eg buying x shares of XYZ and y shares of ABC)?
  • What is day trade buying power actually referring to and how do I utilize it?
  • What is FINRA referring to when they talk about "four times the maintenance margin excess"?

I know that you can't add any profits from a day trade to your day trade buying power without getting a day trade buying power call, but it seems like I can't even get close to using all of my day trade buying power to begin with.

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  • I wonder if this question is just too advanced for this site! :O – Fattie Jul 21 '20 at 0:43
  • That would certainly make me feel a bit better about asking it! – ZSwat Jul 21 '20 at 0:45
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    @Fattie - Don't worry, I'm here to save the day ;->) – Bob Baerker Jul 21 '20 at 1:03
  • lol on that @BobBaerker ! – Fattie Jul 21 '20 at 1:53
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You are correct. Day trading buying power for equities is 4X.

However, SPXL is a 3X leveraged ETF.

The FINRA maintenance requirement for a leveraged ETF is 25% multiplied by the amount of leverage (not to exceed 100% of the value of the ETF). So, the maintenance requirement for an ETF leveraged on a 2:1 ratio will be 50% (25% x 2), and for a 3:1-leveraged ETF, it would be 75% (25% x 3). In the case of day trade, the day-trade buying power for an account will be reduced by one-half and one-third, respectively, for 2:1- and 3:1-leveraged ETFs

Brokers have the right to require more margin than the Reg T allowance.

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  • So then I would only be allowed to buy $40,000 of SPXL? If I were to do so and then want to purchase SPY, would I be able to buy up to $80,000 and have both at the same time (with a day trade buying power of $120,000 as stated above)? – ZSwat Jul 21 '20 at 1:13
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    I provided the FINRA margin requirement. Anything more than that is opening a can of worms. Even so, I'll take a stab at it, which may be incorrect. SPXL is a 3X ETF. That means a 90% margin requirement. You want to buy $100k of it on margin so you need $90k. You have $30k in the account which means that you are $60k short. That's in the ballpark of the -$60,501.87 that you posted. Why the difference? I have no clue unless you're paying a hefty commission. The short answer which is the correct answer is to call your broker and find out their margin requirement for this purchase. – Bob Baerker Jul 21 '20 at 1:33
  • Really appreciate your time and answer, it helps a ton. Difference was probably because it wasn't exactly $100,000 SPXL. I accepted your answer, but I can't upvote you for lack of reputation. Thanks again! – ZSwat Jul 21 '20 at 1:37
  • I upvoted on your behalf, @ZSwat :) – Fattie Jul 21 '20 at 1:55
  • @ZSwat - You're welcome. AFAIC, this is like "Whose Line Is It Anyway" where the points don't matter. :->) – Bob Baerker Jul 21 '20 at 2:25

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