How can I buy and sell the same stock on the same day?

Question

In the United States, Is it possible to buy and sell the same stock on the same day? I heard day traders can do this, and you need to have at minimum of 25K in the account in order to be a day trader. If I have 25K in my account, do I automatically become a day trader and be able to buy and sell the same stock on the same day? Or I have to apply for it? Do all stock brokers allow you to do day trades? I guess my question is are are the steps for becoming a day trader, so I can buy and sell stocks on the day?

Note: I understand there are risks. I am looking for how to do it, because every time I buy a stock I have to wait at least 3 days before I can sell it.

Answer 1

Because it takes 3 business days for the actual transfer of stock to occur after you buy or sell to the next owner, your cash is tied up until that happens. This is called the settlement period.

Therefore, brokers offer "margin", which is a form of credit, or loan, to allow you to keep trading while the settlement period occurs, and in other situations unrelated to the presented question. To do this you need a "margin account", you currently have a "cash account".

The caveat of having a retail margin account (distinct from a professional margin account) is that there is a limited amount of same-day trades you can make if you have less than $25,000 in the account. This is called the Pattern Day Trader (PDT) rule. You don't need $25k to day trade, you will just wish you had it, as it is easy to get your account frozen or downgraded to a cash account.

The way around THAT is to have multiple margin accounts at different brokerages. This will greatly increase the number of same day trades you can make.

Many brokers that offer a "solution" to PDT to people that don't have 25k to invest, are offering professional trading accounts, which have additional fees for data, which is free for retail trading accounts.

This problem has nothing to do with:

• preventing you from inadvertently running afoul of wash-sale rules
• sneakily selling you on trading desks
• sneakily promoting long term investing
• trying to prevent you from subjecting yourself to short term tax rates

So be careful of the advice you get on the internet. It is mostly white noise. Feel free to verify

Answer 2

You should not have to wait 3 days to sell the stock after purchase. If you are trading with a cash account you will have to wait for the sale to settle (3 business days) before you can use those funds to purchase other stock.

If you meet the definition of a pattern day trader which is 4 or more day trades in 5 business days then your brokerage will require you to have a minimum of $25,000 in funds and a margin account.

Answer 3

If you're going to be a day trader, you really need to know your stuff. It's risky, to say the least.

One of the most important elements to being successful is having access to very fast data streams so that you can make moves quickly as trends stat to develop in the markets. If you're planning on doing this using consumer-grade sites like eTrade, that's not a good idea. The web systems of many of the retail brokerage firms are not good enough to give you data fast enough for you to make good, timely decisions or to be able to execute trades way that day traders do in order to make their money. Many of those guys are living on very thin margins, sometimes just a few cents of movement one way or the other, so they make up for it with a large volume of trades.

One of the reasons you were told you need a big chunk of money to day trade is that some firms will rent you out a "desk" and computer access to day trade through their systems if you're really serious about it. They will require you to put up at least a minimum amount of money for this privilege, and $25k may not be too far out of the ballpark.

If you've never done day trading before, be careful. It doesn't take much to get caught looking the wrong way on a trade that you can't get out of without losing your shirt unless you're willing to hold on to the stock, which could be longer than a day.

Day trading sounds very simple and easy, but it isn't. You need to learn about how it works (a good book to read to understand this market is "Flash Boys" by Michael Lewis, besides being very entertaining), because it is a space filled with very sophisticated, well-funded firms and individuals who spend huge sums of money to gain miniscule advantages in the markets.

Be careful, whatever you do. And don't play in day trading with your retirement money or any other money you can't afford to walk away from.

I hope this helps.

Good luck!

Answer 4

You need minimum of $25k otherwise you'll reach a limit. You'll have to wait 3 days for the sale to clear unless you're on margin. Don't buy anything based on idiots on Twitter or the internet. However, there's some good people to follow that know what they're doing.

Don't listen to this guy saying that E*Trade or those platforms aren't fast enough. They all offer level 2 prices so I don't know what he's talking about. Successful day traders aren't buying and selling a stock every single day. There's not always something to buy and sell, unless you're just gambling, and in that case just go to the casino and lose your money there.

Answer 5

You are only allowed to trade settled cash in a cash account. With T+2 settlement (adopted in the U.S. in 2017), the funds from a sale will not be available for two days. There is no limit to how many day trades you can make in a cash account as long as you are using settled funds. For example, assuming that you do not pay commissions, if you have $10,000 of settled cash in your account, you can make ten $1,000 purchases in a day. Once done, you will have to wait 2 days until the trades settle and the funds are back in your account.

A Pattern Day Trader is defined as a person who executes 4 or more day trades (options and equities) in a rolling FIVE business day period in a margin account, provided the number of day trades are more than six percent of the customer's total trading activity for that same five-day period.

A PDT must maintain a minimum equity of $25k on any day that trades are made. It must be in the account prior to the day trading. If the account falls below $25k, the PDT will not be permitted to day trade until the account is restored to the $25k minimum equity level. You will have at most, 5 business days to deposit funds to meet the call. Until the call is met, day-trading will be restricted to two times maintenance margin excess. If the margin call is not met by the fifth business day, the account will be further restricted to trading only on a cash available basis for 90 days or until the call is met.

A PDT is allowed intraday to trade four times the maintenance margin excess in the account as of the close of business of the previous day but must revert to the standard 50% overnight margin by the end of the current day. In reality, you can't go to 4X margin because market fluctuations could trigger a margin violation.

While Reg T margin is 50% and PDT intraday margin is 25% (SEC limits), brokers can impose higher house requirements and restrict the amount of margin offered.