I’m considering applying for margin so I have more flexibility with options, such as spreads, not to gamble with margin money.
I do a lot of day trading but it’s all covered by cash. My biggest concern is being locked out of exiting a trade once I have a margin account.
Their site says:
If this happens, even inadvertently, you'll be required to maintain a minimum equity of $25,000 in the flagged account—on a permanent basis. If you're short of the minimum at the close of any business day, the following day you'll be limited to liquidating trades only.
I have over 25K in the account but I like to have it all invested in one way or another. When they say “minimum equity” I assume that includes money currently invested in equities as well. In other words I don’t have to have 25K in cash sitting in the account doing nothing?
Schwab and Pattern Day Trader Rule
byu/ElTorteTooga inoptions
Posted by ElTorteTooga
6 Comments
I think you are correct, it’s total account value, but some equities might have rules regarding how much of their value counts if it’s volatile, and behavior if it dips, so as always “It depends”
But why don’t you call them and check. We pay them enough in fees.
Not to gamble with margin money
/// I do day trading
🙃🙃🙃
PDT rules concern themselves with account balance only when margin is activated. It’s a FINRA matter.
When they say “minimum equity” they’re talking about the total uninvested cash and anything you have invested in stocks or options.
If you are marked as a pattern day trader and you have all $25,000 invested in anything, and the value of that investment drops to $24,900 (as an example) by the close of that market day, the next day (and going forward) you will not be able to day trade until your account balance has gone back to $25,000. So you will not be able to open and exit trades in the same day until this balance is back above $25,000.
Bringing your balance back up to $25,000 can happen with: 1) the value of your investment going up, or 2) you make a deposit to bring your balance back up to that minimum. Once market closes with your balance being $25,000 or higher, you can begin day trading (opening and closing within the same day) again.
You’ll be fine so long as you maintain an account value > $25k. Even if you drop below $25k, it seems from Schwabs own description of the PDT limits that you are able to continue to execute closing transactions.
The best thing you can do is build your moat a little larger, get to 30,000 if you can, and while you’re doing that, don’t engage in activity that could put handcuffs on you. Once you have a bit of safe room to play with, the moves you wish to make with spreads, strangles, etc will have a little draw down room.