SEEKING ADVICE (PLEASE HELP)

SEEKING ADVICE (PLEASE HELP)

I have a question regarding occasional non-pattern daytrading in a margin account with a $2,000 starting balance. Any advice from a knowledgeable, well-informed person will be greatly appreciated. I just recently opened a margin account and deposited $2,000 with a 2 to

1 margin borrowing capability. My main question is about settlement dates on trades. I know the settlement date for purchase and sale of most securities made in cash accounts is three business days following the transaction. In a cash account one can incur a Regulation T violation when one violates a good faith agreement and doesn't have sufficient funds available to settle. Please read the example below and then view my follow up question.

Good Faith Violation Example 1: Available to Purchase Securities = $0.00 · On Monday morning, a customer sells XYZ stock netting $10,000 in cash account proceeds · On Monday afternoon, the customer buys ABC stock for $10,000 · If the ABC stock is sold prior to Thursday (settlement date of the XYZ sale), a good faith violation would be charged as the ABC stock is not considered fully paid for prior to sale. Good Faith Violation Example 2: Available to Purchase Securities = $10,000 · On Monday morning, a purchase is made for $10,000 of XYZ stock · On Monday mid-day, the customer sells the $10,000 of the XYZ stock · Near market close, the customer purchases $10,000 of ABC stock · At this point no good faith violation has occurred because the customer had sufficient funds for the purchase of XYZ · If ABC is sold prior to being paid for (settlement) then a good faith violation will have occurred Good Faith Violation Example 3: Available to Purchase Securities = $10,000 - Cash Credit from Unsettled Activity = $5,000 (Proceeds from a sale of stock the prior Friday - Trade settles on Wednesday) · On Monday morning, customer purchases $15,000 of ABC stock · A good faith violation occurs if this customer sells the ABC stock on Monday or Tuesday. · The purchase is not considered fully paid for because the $5,000 proceeds are not considered sufficient funds until they are settled on Wednesday.

My question is would the example above pertain to a margin account as well or only a cash account in regards to how long you have to wait before a purchase and sale settles so you can move on and make another purchase. Are Good Faith Violations possible in a margin account as well? Ok, so if I start out with $2,000 in my margin account, borrow another $2,000 and buy $4000 worth of XYZ stock on Monday morning then sell XYZ stock later Monday afternoon, can I then use the $4,000 and any net gains to buy ABC stock the next day on Tuesday morning then sell ABC stock Tuesday afternoon, then use the $4,000 and any net gains to buy EFG stock Wednesday morning then sell EFG stock Wednesday afternoon.

Since one has to have $25,000 or more to pattern daytrade, and pattern daytrading is defined as making 4 or more daytrades within a five business day period, my idea is to day trade three times in every five business day period. In order to do that I need to know If after each purchase and subsequent sale a particular stock I can then go on to buy and sell a stock to more times without having to wait three days between each trade to wait for the purchase and sale to settle. Does one have to wait three business days for a transaction to settle in a margin account? I would greatly appreciate any advice or knowledge anyone has on the subject. Thank you very much.

Reply to
ymyaw55
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Sorry, no can help on the advice request. Just thought I'd mention this tidbit: In my mind "financial planning" and "day trading" are at completely opposite ends of the spectrum.

If I had a choice between day trading and throwing it down on the craps table in Vegas -- I'd be heading to Vegas, 'cause at least that would be entertaining while I was losing a pile of money.

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Reply to
Sgt.Sausage

Daytrading isn't investing, it's gambling, and over time most day traders go bust. Even low commissions add up when you trade multiple times per day.

You need to ask your broker precisely what the rules are regarding settlement in an account which you intend to day trade. I've understood those rules to be slightly different than those of standard settlement.

You may want to review the rest of your financial affairs before gambling away this $2000.

JOE

Reply to
joetaxpayer

My 2 cents ... daytrading is simply trading, and trading is not investing that's for sure, but forget that trading on margin. I am much more comfortable trading than I am investing. And I have no problem holding cash while I look for an interesting purchase. Fwiw, I look for 1000 shares of something that'll go up a dollar or two over a day, or week, and then sell, and always with a stop loss in place. I just don't see this market as something to invest in ... when it does correct, I'll have cash and the choice to get back in either as an investor or trader.

Reply to
bowgus

Bowgus,

Just out of curiosity, how often do you find and purchase the value investments? Also have you found your method to be more successful than other methods given similar risk levels (isn't this what its really all about)?

I have met investors with similar strategies that purchased so infrequently that even though they made 1-3% in a week, their funds spent so much time in low-risk investments (cash, money mkt, & t- bills) that they didn't come out any better than their contemporaries did in comparable investments. After-taxes (ordinary, not CG) many discovered that they actually did worse. Often times they were also simply wrong about the trending stock price and sold down to free up the cash to get into another "value investment".

Not attacking your system, I'm just intrigued. Like I said, many of the investors I have met that did this probably didn't put in the time or have the understanding to find these values fast and frequently enough. Just wondering what your experience has been so far.

Reply to
kastnna

As mentioned in a previous thread, this is a (very interesting) hobby for me and not part of my financial plan.

Good timing though ... one of my accounts required some activity to avoid being closed. I peruse the daily reports out of RBC with whom this account is ... I am interested in value, so I am following a number of utility/energy equities ... but that's another story, for another account.

For the account that requires activity, I settled on Shore Gold (TSX: SGF) closing at $5.40 last night. It's a real beat up stock but the RBC report includes "they're looking for financing in 2007 ,,, the market is not recognizing any value for the large-tonnage (snip) deposit ... " and put a target on it of $9.00. Now, I don't like doing this, but with all day workshops going on this week and being unable to get to the internet during the day, this morning around 6:00 am, I put in a buy of 1000 shares at $5.40. Just got home and the order is filled at $5.40, meanwhile the closing price is $5.26. So I'm already "down" $140. I put a stop limit of $4.80 on it through the next month. I can sleep at night because I am prepared to lose $600 (hope I did the math right). On the other hand, if things go well for Shore, I'm prepared to go along ... as long as there's progress.

You are welcome to follow along and judge the success or lack thereof of my "method" for yourself.

Reply to
bowgus

So to sum up, I was able to watch TSX:SGF today (looks to have hit bottom), and to read an encouraging report (high likelihood of an operating mine late 2007/early 2008), and so made my 2nd buy of 1000 units at $5.24. If all goes well, I will make at least 1 more buy over the next few months ... depending.

About that energy value I've been pondering. Finally picked my buy which was ARC Energy Trust (TSX:AET.UN). Why a fund ... that 10% "dividend". Why ARC ... well, all the oil heavy funds have already done a lot of growing. ARC is about 63 oil/37 gas and with all the attention on oil, hasn't grown much. So ... ARC is from what I've read an excellent all round company, gas has gotta go up eventually, and if so, it was (tbd of course) an excellent buy at $23.10. This is my RSP (tax sheltered) account ... I plan to hold ARC for a long time. How many shares did I buy ... 3 thirds :-)

So that's it ... done for now ... well, keeping tabs on one more that I made a few $$s on earlier in the month, then sold. Just waiting for the buying frenzy to die down.

Reply to
bowgus

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