Day Trading Rules and Regulations [tradingsadvantage]

Day Trading Rules and Regulations [tradingsadvantage]

BOOK REVIEW INSIDER TRADING By Stephen M. Bainbridge ISBN: 978 1 84980 135 5 EDWARD ELGAR PUBLICATIONS www.e-elgar.com WHERE GREED IS NOT GOOD: ANTI-INSIDER TRADING REGULATIONS IN THE US -- THE THEORY, THE HISTORY, THE DEBATE An appreciation by Phillip Taylor MBE and Elizabeth Taylor of Richmond Green Chambers If you're a fan of Michael Douglas's performance as the ruthless Gordon Gekko ('greed is good') in the film 'Wall Street', you may well be intrigued by the learned articles in this book on insider trading. Compiled in one handy hardback volume, this publication brings together some of the best learned commentary from the US on this often vexed and controversial subject. Part of Edward Elgar's admirable 'Corporate Law' series, this engrossing collection of articles offers both a theoretical and historical perspective on insider trading. If you're doing research, or need some background on this subject, editor Stephen J. Bainbridge has cherry picked a collection of some of the most interesting articles on insider trading published in the US over a period of forty years or so, so you don't have to. How handy is that? Even though American, the articles have equal relevance in the UK and indeed in any country which has a developed capital market, as you are reminded by the editor that the United States was once virtually alone in aggressively prosecuting insider trading and that 'even today, US insider trading law remains distinctive in the strict nature of its ...

tradingsadvantage.blogspot.com Insider Trading

But the publication of the findings by a panel of independent lawyers comes against a backdrop of increasing frustration with Nomura among regulators over the course of a lengthy probe into alleged cases of insider trading in 2010, according to ... Nomura's Compliance Failings Report Follows Regulatory Probe

It is one of the first, confusing facts for the neophyte trader. Day trading rules and regulations.

Let's say Bill wants to start trading stocks. He opens an account with an online broker. He funds it (puts money into the account) and he applies for a margin account (margin is the amount of money the broker allows Bill for trading, on top of his equity position). Bill puts in $ 5000 and his broker puts in $ 5000. Bill doesn't like the idea of holding stocks over-night, so he buys and sells his stocks on the same day. He does this three times in just his first day alone. Since he is new to day trading, he feels okay about just breaking even on his first day.

On day two, he does the same thing. And either before he executes the trade, or very soon afterward, he gets an email message from his broker. Something about a "margin call". The broker is demanding that Bill deposit an additional $ 20,000 into his account immediately since he is now considered a pattern day trader.

Bill freaks out because he doesn't have $ 20,000. His palms get sweaty. He suddenly feels like a gambler who cannot repay his debts. And he anticipates a knock at the door any minute.

What Bill failed to do was to read the fine print supplied by his broker. It looked like standard contract stuff to him, so he just glossed over it. But if Bill had read the fine print regarding accounts, margins, day trading rules, and day trading regulations then Bill would have known not to do what he just did.

So, stated in simple terms (please read your broker's fine print), these are the day trading rules and regulations. If a trader makes a same day round trip transaction (meaning the trader buys and sells, or shorts and covers, the same stock in the same day), then that is considered a day trade.

If the trader does this more than three times during a five-day period that the market is open, then the trader is considered a pattern day trader. And a pattern day trader is required to have at least $ 25,000 equity in that account. This is the S.E.C.'s rule, not the broker's rule. Lacking the $ 25,000, the broker is required to issue a margin call and demand that the trader deposit adequate funds to comply with the S.E.C.'s rules. Failure to do so can result in the broker closing that account.

So Bill has a choice. He can come up with the $ 20,000. Or, he can contact his broker, apologize on bended knee, and promise that it will never happen again. The broker will often forgive the first offense. But not the second one.

So, if you're new to day trading, then read the fine print. You can still day trade with less than $ 25,000.  You just cannot do it more than three times in a five-day period.

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