My question is about settled and unsettled funds in a margin account. I'm an occasional trader and would like to better understand the settlement dates. Basically, if a stock goes up x amount, I like to lock in my gains then immediately buy the stock back (which can make me $$$ in a down and sideways market) Sometimes the stock will rise quickly, and I find myself ready to sell a day or 2 after I bought it. However, I don't have the best understanding about settled funds, and the research I've done hasn't exactly explained it.
In this example, lets assume I have all my $$$ tied up in stock ($0 cash) and $10,000 in available margin. On 7/7/16, I sold 100 shares of MRO for $1,500. On 7/7/16, I then bought 100 shares of MRO for $1,500.
Funds settle 3 business days after the trade, so that would be on 7/12/16. 1) Do these funds settle at 11:59 PM on 7/12/16 or when exactly? 2) With a margin account, am I borrowing $1,500 from the brokerage for 6 days? (7th thru 12th) 3) What happens if I sell the new stock on 7/11/16 -- before the funds settle?
Thanks for the help!
Edit: My account had previously been a cash account, and has been converted to margin. I think I had been getting some wires crossed, so thanks for the clarification on settlement dates and margin accounts. As a result, I'll be trading more frequently (and making more $$!)
Sorry for any confusion -- I had initially included more info, then chopped it down since the post seemed like it was getting a little stuffy. But you guys seem to like more info, as long as it includes some sort of logic. Back in 2000, I bought Ford for $15 and still have some of that original investment. Today, it's $14. After dividends, I've eked out a small gain after 16 years. Could I have put that $$$ to better use by selling it at a loss? Sure, but after looking back at my history during that time, I sold out of AMZN at $28 and AAPL (adjusted) for $1 due to a new strategy. It would've been nice to have that reversed and kept 20% of my AMZN and AAPL purchases, just as I did my F.
I am occasionally changing my strategies based on experience. There have been some years where some stocks don't do much, and I want to capitalize on those years. Having done a lot of real trading and fantasy trading, there are certain strategies I want to pursue. According to my account history, some of my best stocks over the years have been the stable companies -- such as utilities. But they don't always go up. Sometimes they go down, and at other times they go sideways. Regardless, they always seem to pay a good dividend. So my recent strategy has been to buy more shares every time the price drops $1. It may leave me with 4 entry points, but I often end up selling out after the price goes up $1/share. And if the price keeps going down, then I'm getting a quality company at an even better price AND the dividend yield keeps going up. Am I losing out because of commissions? Not really -- this is made up for with daily volatility. Sometimes the price drops a few % for no apparent reason, other than a down day in the industry. It usually makes it up in a few days, which is $$$ in the bank for me. I've even gone back years and calculated this strategy against historical prices -- including dividend dates and potential margin expense. At no time did this strategy have more than 5 entry points. The quicker the utility fell, the quicker it regained it's loss. (perhaps some day if I get rich enough, I'll be able to pursue the strategy of doubling my share count every time the price drops $1 lol)
As far as the MRO example: I used that one b/c it was the last trade in my account, and I wanted accurate trade/settlement dates. During the last oil 'crisis' ; ) (when pump prices dropped from $4.25 in August to $1.50 in December, I discovered that it's best to trade market volatility in certain oil companies, otherwise you can easily get left in the dust. I left a lot of $$$ on the table back then, and have learned from that mistake. Fortunately I called a bottom in MRO within 20 cents or so, and made some good $$$ before it completely lost all those gains again.
And yes Bacon, I realize that short-term gains are taxed at a higher rate than long-term gains. But the volume of short-term gains seems to be to my benefit.