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.