Day Trading: Facts, Fiction and Discussion: New rules for day-traders

» Karin_ - New rules for day-traders

New rules for day-traders and their margin account Bob will be delighted tomorrow and talk about it for ever:

The NYSE and Nasdaq are seeking to define day traders as investors who move in and out of a single stock more than four times within five days in one specific margin account.

The initiative on the part of the markets follows a recent decision by the Federal Reserve to leave national minimum margin requirements unchanged. The Fed allows investors to borrow up to 50 percent of a stock purchase. For example, an investor who wants to purchase $100 worth of stock can borrow up to $50 for that deal.

The NYSE and NASD proposals would force day traders to maintain a minimum of $25,000 at all times in their margin accounts, versus $2,000 for other margin account holders. Day traders currently only have to keep $2,000 in their accounts.

The high-risk group would also only be able to invest up to four times the amount of equity they hold in an account at any time during the trading day.

If a day trader violates that limit, his borrowing privileges would be cut to only double the value of the equity in his account. Also if he fails to make good on a margin call, he would only be able to invest with their own cash for a period of time.

-- posted by Karin_