A day trader is one trading stocks, options, commodities, or futures on the web. Many times new day traders ask the difference between stock/options trading vs. futures day trading. This question comes up many times in our user’s camp. Now, if the rules are overlooked unintentionally (or knowingly), let’s discuss what they are and what happens if violated.
This article only debates online day trading as it relates for stocks and options vs commodities and futures. Commodities and Futures have similar online day trading rules.
If you have been part of trading for any time, I’m sure you have heard of the 431 Rule. It is defined as a ( Margin requirement ) for any customer who performs four or more same online day trades inside any five successive business days. Further, your online day trading activities are greater than six percent of your total trading activity for that same 5 day period ( from FINRA site ). Having a margin call is no fun and must be answered if violated. As a day trader trading stocks are options with less than $25,000 in your account, you must be aware of trading this money more than 1 time in the 5 day period.
Day trading futures and commodities does not have this type of margin requirement. Margin requirements when day trading differ in you can make multiple trades in a given day and there are no limits to how frequently you can trade your money.
Rules for a Online Trading
The equity in your trading account must be retained over $25,000 to be in a position to trade and not run into issues. If not, say you trade $5,000 and cash out of your position within 10 min. That $5,000 can not be traded for 5 days. Strange rule I know, but that is the rule.
Trading futures and commodities, margins can be as low as $500 and once cashed out of a position, the same money can be traded again with no wait time.
Only three trades in a week ( 5 trading days ) are permitted or you’ll be given a 90-day suspension of all trading activities if you still engage in trade on the 4th day.
A day trader can transact many times in a day with no limitations.
Hence, in my opinion, day trading is a better path to take if your taking multiple trades in a day.
When stock trading the amount of $25,000 equity should be maintained in your trading account. During buying and selling similar stock/option in the same day, do not go into a new trade where the funds from the sale of the stock just sold will be used to acquire a new position. If you have purchased a position from cash from a previous same day sell, it is best to save that position overnight.
The trading rules I have offered here are the ones I have run across through all the years i have been doing trade. You can get all-encompassing info by exploring the online network for online day trading and pattern day trader. Wikipedia can be utilized to get such info.
I have traded a number of years in accounts with less than $25k and have never had a 90-day suspension canon applied, but have had more than a few alerts about a trade that will prompt the ninety-suspension canon. When this takes place, I just do not perform the trade and will pause till next day. Good luck in your trading…