| Author |
Message
|
| crazymonk |
 Posted: Fri Jun 15, 2007 5:25 am Post subject: How to avoid free-ride? |
 |
|
Investing Sr. Associate
Joined: 01 Mar 2006
Posts: 51
This Month: 0
9952.96 e$
Net worth: 9,952.96
Portfolio Value: 0.00
Monthly Return: 0.00%
Trades this month: 0
Churn Rate: 0.00%Items
|
I just started to get into the market, however I encounter the unfair rule of 3-days settlement. This mean I have to wait 3 days to do a roundtrip trade. Else I can buy but cannot sell. Some suggest upgrade to margin account. However I want to daytrade once or twice a week, but don't intend to be a daytrader. Is there a negative side if I open a margin account (but don't buy with margin)? is it going to solve the free-riding problem?
Thanks. |
|
| Back to top |
|
 |
| Dave Rathbun |
| Posted: Fri Jun 15, 2007 7:14 am Post subject: |
|
|
CFO
|
I think you can avoid the rule if you have $25K in the account.
The basic reason for the rule is you can't trade on funds that have not settled yet. So when you sell something, the funds are not deposited into your account until the settlement date. It's like trying to deposit a check in your checking account and then writing a new check on those funds before those funds have cleared. |
|
| Back to top |
|
|
| crazymonk |
| Posted: Fri Jun 15, 2007 12:28 pm Post subject: |
|
|
Investing Sr. Associate
Joined: 01 Mar 2006
Posts: 51
This Month: 0
9952.96 e$
Net worth: 9,952.96
Portfolio Value: 0.00
Monthly Return: 0.00%
Trades this month: 0
Churn Rate: 0.00%Items
|
| Dave Rathbun wrote: | I think you can avoid the rule if you have $25K in the account.
The basic reason for the rule is you can't trade on funds that have not settled yet. So when you sell something, the funds are not deposited into your account until the settlement date. It's like trying to deposit a check in your checking account and then writing a new check on those funds before those funds have cleared. |
I think the rule favor the brokers too much, for nowaday, everything can be settle via computer within minutes. They got to keep our money for 3 days.
Anyway, Scottrade stated that you can open a margin less than 25K (2K min only if you're not a daytrader). |
|
| Back to top |
|
|
| geb9696 |
| Posted: Sun Jun 17, 2007 9:04 am Post subject: |
|
|
Investing VP
|
| Dave Rathbun wrote: | I think you can avoid the rule if you have $25K in the account.
The basic reason for the rule is you can't trade on funds that have not settled yet. So when you sell something, the funds are not deposited into your account until the settlement date. It's like trying to deposit a check in your checking account and then writing a new check on those funds before those funds have cleared. |
This is 100% correct. |
|
| Back to top |
|
|
| sport302 |
| Posted: Sun Aug 19, 2007 7:28 pm Post subject: |
|
|
Investing Associate
Joined: 13 Feb 2007
Posts: 17
This Month: 0
9072.00 e$
Net worth: 9,072.00
Portfolio Value: 0.00
Monthly Return: 0.00%
Trades this month: 0
Churn Rate: 0.00%Items
|
Simple answer- Yes you can avoid the free-riding issue with a margin account.
Negatives - None if you treat it just like a cash account and only use your actual cash. |
|
| Back to top |
|
|
| deprived |
| Posted: Fri Aug 31, 2007 3:31 am Post subject: more questions |
|
|
Investing Sr. Associate
|
| I have an account and once i sell a stock i get my funds posted within that business day and i pay a confirmation fee to ensure the funds are aqquired, Am i still limited to the three day rule? |
|
| Back to top |
|
|
| efflandt |
| Posted: Fri Aug 31, 2007 11:04 am Post subject: |
|
|
Investing Manager
|
| One thing to be aware of in a margin account is that if you have a stock that pays a "qualified" dividend and that stock is loaned out to a foolish short, you get the dividend from the person who shorted it, but it is not "qualified". So if your stock has been shorted, the dividend would be fully taxable instead of considered a long term gain. |
|
| Back to top |
|
|
|
|
stock market game on the web. At eInvesting you compete for monthly cash prizes while you interact, make virtual dollars, purchase items, and trade in the realistic stock market simulator. We make investing FUN!
