should i go from cash account to margin?

[nealio]

I currently have a cash account with Scottrade.  To avoid free riding and the 3 day rule I have been considering margin.  I have above the required $2,000 to get setup with margin.  Should I do this?  Any risks or anything I should know?

[Dr PennyStock]

To avoid the three days rule, you need a minimum of $25,000 on your account, send an email to your broker and confirm.

[nealio]

I called my broker and they stated that if I sign a margin agreement, it will take only 1 day to settle instead of 3 days.  Is this correct?

What is the advantage of having margin?

[Dzielak51]

Yes, i have a margin account with scottrade and i have no wait time.  I have bought and sold several times in a single day and never had a problem.

[vanguard223]

This may sound like an idiotic question but don't you have to pay interest on any money that is reused before the 3 days is up on a margin account?  I don't fully understand how margin works.  I have a cash account now and it sucks having my money tied up for 3 days after a sell. 

[nealio]

someone PLEASE correct me if i am wrong, but i believe it works like this:

say you have $100 in your cash account.  You buy $100 of stock Y, and then you sell however many days later and end up with a total of $200.  These funds ($200) are not yet settled (3 day rule) and you decide to go ahead and buy $200 of stock Z the very same day.  You cannot sell stock Z until the money from stock Y has been settled UNLESS you deposit an extra $200 in your account to pay for your purchase of stock Z.

If you have margin, your broker will cover the $200 that you spent to purchase stock Z so that you may sell this stock whenever you please.

In other words by signing a margin agreement the broker extends credit towards you.

Another thing say you have a margin account and you have $200 equity.  Say you have used your $200 towards a stock.  If you have margin, you can still go ahead and buy other stocks with the brokers money, but this is very risky.

I ended up signing a margin agreement, with the purpose of getting my funds to settle quicker (in a way).  I am not intending to purchase  stock with my brokers money.

[Greg]

Yes, you barrow from the Margin account until the settlement is made on previous buys...

The 25K rule is in place to prevent numerous trades 10-30+ / day. If you reach the profile of a day trader they will halt all buying but allow selling.  This will be in place till you have reached 25K in your account...
If you go below 25K during a trading session, the day trader rule is invoked and you will only be able to sell until the account is brought current...

[vanguard223]

Thanks guys, that clears things up a bit for me.   

I think I'll get my account converted to a margin account now.  Like you said, not to borrow my brokers money but to be able to buy again quicker after a sale.

[Dr PennyStock]

Yes, i have a margin account with scottrade and i have no wait time.  I have bought and sold several times in a single day and never had a problem.

Sorry to ask this, if you don't want to respond, I understand, but, are you able to do that with less than 25k in your account or do you have a minimum balance of 25k?

Again, if you don't want to respond, no problem.

[Dzielak51]

I have less then 25k in my account. To be considered a "Pattern Day Trader" with scottrade you must daytrade 4 days out of the week. I don't trade that much, but I have bought, sold and bought again many times before in a single day with no problem.

[Dr PennyStock]

Thanks for the response Dzielak, it's strange because if you buy, sell and buy again the same stock in the same day, you are under the Pattern Day Trader rule, at least with TDAmeritrade, anyway this is not a problem, if Scottrade allows you to do that, good for you. 

[Trelly]

What is the Pattern Day Trader rule for Ameritrade? I'm sure it's similar to what it is for Waterhouse.

[vanguard223]

With Etrade, the pattern DT rule is 4 times in 5 trading days.  I don't know about Ameritrade.

[Dzielak51]

Thanks for the response Dzielak, it's strange because if you buy, sell and buy again the same stock in the same day, you are under the Pattern Day Trader rule, at least with TDAmeritrade, anyway this is not a problem, if Scottrade allows you to do that, good for you. 

Yes, Scottrade allows of this but only 4 times i a 5 day period.  Once you cross into the Day trading rule you can no longer trade until you have atleast 25k in your account.  Theres no going back.

[Dr PennyStock]

What is the Pattern Day Trader rule for Ameritrade? I'm sure it's similar to what it is for Waterhouse.

The Pattern Day Trader rule is the same to all brokers, it's a SEC rule.

With Etrade, the pattern DT rule is 4 times in 5 trading days.  I don't know about Ameritrade.

It's the same on Ameritrade.

Thanks for the response Dzielak, it's strange because if you buy, sell and buy again the same stock in the same day, you are under the Pattern Day Trader rule, at least with TDAmeritrade, anyway this is not a problem, if Scottrade allows you to do that, good for you. 

Yes, Scottrade allows of this but only 4 times i a 5 day period.  Once you cross into the Day trading rule you can no longer trade until you have atleast 25k in your account.  Theres no going back.

Ah, you need to control very well your account, if not they will block the account for 90 days or until you have the 25k in your account, I guess.