Say you’re a small time investor and looking to flip a few stocks to maximize your gains. Great, right? There are some rules that you need to first know about day trading & pattern day trading before you start buying and selling stocks all willy nilly.
The FINRA (Financial Industry Regulatory Authority) has set laws.
If you have less than $25k in your account, you are allowed 3 day trades within 5 trading days. After that, you are marked a pattern day trader. This means that you are no longer allowed to make a day trade for 90 days or until your account is over $25k. You can still make trades, just no more day trades.
So, what counts as a day trade?
If you “open” a transaction and then “close” a transaction, that counts as a day trade.
For example:
Buy 1000 shares of XYZ
Sell 1000 shares of XYZ
This is ONE daytrade
Buy 1000 shares of XYZ
Sell 500 shares of XYZ
Sell 500 shares of XYZ
This is still ONE daytrade, though the sells were done in two separate transactions.
Alternatively,
Buy 500 shares of XYZ
Buy 500 shares of XYZ
Sell 1000 shares of XYZ
This is TWO daytrades, as you opened two transactions, and closed them both in one sell transaction.
Buy 500 shares of XYZ
Buy 500 shares of XYZ
Sell 600 shares of XYZ
This is still TWO daytrades, as a part of the second transaction was closed.
Buy 100 shares of XYZ
Buy 100 shares of XYZ
Buy 800 shares of XYZ
Sell 400 shares of XYZ
This is THREE daytrades, as three transactions were opened, and the one sell closed the first two buys and closed a part of the third buy.
Hope that explains a little bit of day trading.
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