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I recently learned that the pattern day trader rule will keep me from day trading stocks because I have less than $25,000. I found out it only applies to margin accounts so I figured I'd be fine just using a cash account. Then I find out the T+3 rule for cash accounts which seems to imply that I still can't day trade the way I want (roughly 10 trades 5 days a week). Then I read that a buying order also takes 3 days to settle, so you can buy stock using unsettled cash because by the time the buy has been settled the money from the last sell will be settled. I'm not sure I really understand this though.

I also looked at forex trading, but it seems way too unpredictable and I read too much about corruption in it. It also sounded like a great way to lose all my money.

Another option is trading in a prop firm, but I have little understanding of how this works and there seems to be so many options. I really want to stay as independent as I can though, unless this is the best option I have.

To sum up, if I have $10k and strictly want to day trade (I am good at seeing small scale patterns but not very good at figuring out long term trends) what would be the best way to go about it? And if anyone could explain if this T+3 rule would actually affect me or not that would be great.

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    You want to day trade but you are asking these questions. It doesn't seem like you are ready for any type of trading. Do you have a Trading Plan? Do you have Money Management and Risk Management in place? How do you work out your Position Size? Also, there are many forms of short term trading outside Day Trading - all Day Trading means is that you close any open positions before the close of the market on that day. You can have short term trades that last 2 days, a week or longer. – Victor May 15 '16 at 21:59
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    So you have $10K and are looking to put the whole amount into one trade and your profit target from the $10K is only $10, that is 0.1% return on your investment. If the price drops just after you buy what would you do then - keep waiting for it to move up to your $10 profit mark? – Victor May 15 '16 at 22:23
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    The secret of successful trading is to keep your losses small and your wins big - you are risking way too much money on a single trade for such a small profit - even if it takes less than a minute to make that profit. How much are you willing to lose in order to make your $10 per trade? Like I said have you actually got a written Trading Plan? Also, I think you should read up on Position Sizing ! – Victor May 15 '16 at 22:27
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    None of this is really relevant to the question but I don't plan on putting it all into one stock at a time. – Frobot May 15 '16 at 22:43
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    your link says "This graph is for investing 10k into Facebook (over the past two weeks). The profit goal is at 10 dollars and the maximum hold time is 20 minutes." If you want to day trade then all that I have talked about in my comments above is very relevant if you want to be successful - a Trading Plan, Risk Management and Position Sizing being the most important. – Victor May 16 '16 at 9:21
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The T+3 "rule" relates only to accounting and not to trading. It does not prevent you from day trading. It simply means that the postings in you cash account will not appear until three business days after you have executed a trade. When you execute a trade and the order has been filled, you have all of the information you need to know the cash amounts that will hit your account three business days later.

In a cash account, cash postings that arise from trading are treated as unsettled (for three days), but this does not mean that these funds are available for further trading. If you have $25,000 in your account on day 1, this does not mean that you will be able to trade more than $25,000 because your cash account has not yet been debited. Most cash accounts will include an item detailing "Cash available for trading". This will net out any unsettled business transacted.

For example, if you have a cash account balance of $25,000 on day one, and on the same day you purchase $10,000 worth of shares, then pending settlement in your cash account you will only have $15,000 "Cash available for trading".

Similarly, if you have a cash balance of $25,000 on day one, and on the same day you "day trade", purchasing $15,000 and selling $10,000 worth of shares, then you will have the net of $20,000 "Cash available for trading" ($20,000 = $25,000 - $15,000 + $10,000).

If by "prop account" you mean an account where you give discretion to a broker to trade on your behalf, then I think the issues of accounting will be the least of your worries. You will need to be worried about not being fleeced out of your hard earned savings by someone far more interested in lining their own pockets than making money for you.

  • I think I understand what you are saying. What it boils down to is - if i buy $1,000 worth of stock, then 30 minutes later sell it back for $1,010 do I now have that $1,010 to make more trades? Or do I have to wait 3 days before using it? And I am talking about proprietary trading, which from my very limited understanding I thought was using a firm's money to make your own trades, which keeps you out of the "pattern day trader" rule – Frobot May 15 '16 at 18:59
  • @Frobot Yes. In any cash account I've ever used, you would include net profits from trading in Cash Available to trade. So if you day trade a $10 profit on a $1000 trade then you will have $1010 available and not have to wait for settlement. This is my experience (in the UK and Canada), and I'm pretty sure the US will be similar. Regarding, "using a firm's money to may your own trades", that sounds like margin trading and of course it will come at a cost - probably a considerable cost relative to current borrowing rates. – Nick R May 15 '16 at 19:09
  • @Frobot Proprietary trading refers to trades execute by a financial institution on its own account - in other words, the financial institution speculating with its own money. It does not include trading executed by its customers and it is not a service offered to its customers. – Nick R May 16 '16 at 3:07
  • @Frobot If you're using a cash account and are in the US, you'll run into issues with Regulation T. In essence, Reg. T says that you can buy stock with unsettled funds but you may not sell until those funds settle. In your example, if you started out with $1,000 in your account, you would have $1,010 in unsettled funds after the first sale and $0 in settled funds. You can buy $1,010 worth of stock immediately but you would not be allowed to sell it again until T+3. Basically, forget about day-trading in a cash account; it's not going to work. You need a margin account. – TainToTain May 20 '16 at 0:59
  • @TainToTain That's interesting. It is not clear to me why such a restriction would apply since the broker would not allow you to withdraw unsettled funds. I've only ever traded in the UK and now here in Canada. US regs sound much more onerous. – Nick R May 20 '16 at 1:04
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You avoid pattern day trader status by trading e-mini futures through a futures broker. The PDT rules do not apply in the futures markets. Some of the markets that are available include representatives covering the major indices i.e the YM (DJIA), ES (S&P 500) and NQ (Nasdaq 100) and many more markets.

You can take as many round-turn trades as you care to...as many or as few times a day as you like. E-mini futures contracts trade in sessions with "transition" times between sessions. -- Sessions begin Sunday evenings at 6 PM EST and are open through Monday evening at 5 PM EST...The next session begins at 6 pm Monday night running through Tuesday at 5 PM EST...etc...until Friday's session close at 5 PM EST.

Just as with stocks, you can either buy first then sell (open and close a position) or short-sell (sell first then cover by buying). You profit (or lose) on a round turn trade in the same manor as you would if trading stocks, options, ETFs etc. The e-mini futures are different than the main futures markets that you may have seen traders working in the "pits" in Chicago...E-mini futures are totally electronic (no floor traders) and do not involve any potential delivery of the 'product'...They just require the closing of positions to end a transaction.

A main difference is you need to maintain very little cash in your account in order to trade...$1000 or less per trade, per e-mini contract...You can trade just 1 contract at a time or as many contracts as you have the cash in your account to cover. "Settlement" is immediate upon closing out any position that you may have put on...No waiting for clearing before your next trade. If you want to hold an e-mini contract position over 2 or more sessions, you need to have about $5000 per contract in your account to cover the minimum margin requirement that comes into play during the transition between sessions...

With the e-minis you are speculating on gaining from the difference between when you 'put-on' and "close-out" a position in order to profit. For example, if you think the DJIA is about to rise 20 points, you can buy 1 contract. If you were correct in your assessment and sold your contract after the e-mini rose 20 points, you profited $100. (For the DJIA e-mini, each 1 point 'tick' is valued at $5.00)

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One way a lot of people bypass the pattern trading equity requirement is to open multiple brokerage accounts. You have $10k, put $5k in one and $5k in another. Although I don't recommend it!

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