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There are all sorts of rules that brokers generally abstract away: https://finance.zacks.com/tax-rules-use-proceeds-stock-sales-buy-new-stocks-8465.html https:

There are all sorts of rules that brokers generally abstract away: https://finance.zacks.com/tax-rules-use-proceeds-stock-sales-buy-new-stocks-8465.html https://finance.zacks.com/tax-rules-use-proceeds-stock-sales... https://www.fidelity.com/learning-center/trading-investing/trading/avoiding-cash-trading-violations https://www.fidelity.com/learning-center/trading-investing/t... My understanding is that you couldn't do day trading without a margin account.

mrits 6y ago
I have a margin account but E*Trade let me day trade for years without one. There were rules like you couldn't buy and sell the same stock in the same day but you also got hundreds of violations before they suspended this ability. So if you are more of a day-swing trader and not doing high volume it worked well enough for me.
- garmaine 6y ago
  The point is you are technically margin-trading when you do that. From the broker's perspective you are trading on margin until your prior trades settle.
  - evolve2k 6y ago
    As a onboarding hack I can see this as a great idea to help people get their first $100-$1000 on the market fast. But the chance of an eventual margin call is almost certain in the long run (as has happened here). It’s time to talk ethics in tech, this was a design decision to not unwind this once the user was embedded or otherwise clarify this upfront. Margin call risk totally must be disclosed and is legally required (in Australia where I am) to be disclosed by any investment professional you paid to setup this sort of arrangement. I’d be fairly confident the same applies to US investment advisers. It’s totally the sort of ‘feature’ that the user could have been advised of around say the 30 day mark. “We’ve set you up a margin account that’s valid for your first $1000, please now confirm if you’d like to continue to carry a margin call risk otherwise were converting you to a standard account.” It’s also super common for margin facilities to allow investors carrying the risk, 24-48 hours to contribute to retain the position, auto-selling out is a last resort.
    - garmaine 6y ago
      It’s not just on-boarding. People expect to make a transfer from their bank account and have insta-credit to their RH tradable cash balance. This is a core feature of their app.
      - grey-area 6y ago
        That is possible in many countries without margin (using faster payments and open banking).
        ChrisIsTaken 6y ago
        Australia has had real time transfers on our reserve bank's "New Payments Platform" since 2018. Transfers are finalized in a few hundred milliseconds. And we're actually half a decade behind most of Asia and Europe.
      - fspeech 6y ago
        This is not specific to margin accounts and is not what is meant by margin. Cash account with any broker (that I know of) would also give you the same feature -- that is you have access to the cash for trading before the transfer is complete.
        garmaine 6y ago
        If they are letting you trade with instant credit, then under the hood there ARE margin loans going on. To be compliant with SEC regulations the broker must be pulling on short term margin loans from a bank to cover the securities being bought without hard cash in hand.
        fspeech 6y ago
        No they are exposed to you as a credit risk. They trust you that you intend to transfer the money in good faith. As long as the transfer is complete at no point they make a loan to you because trade settles at T+2, i.e. cash is not required on the date of trade. It is the loaning aspect that is regulated. Free riding is forbidden by Reg-T of the FRB. Your broker's settlement risk is not considered a margin loan either. It is a credit risk that they satisfy by depositing funds with the DTCC for a tiny fraction of the notional value. The difference between the credit risk and the margin loan is that in the vast majority (say > 99%) of times the credit risk does not become a loan. You don't need to punish all the people acting in good faith for the action of a few. The regulation on free riding comes from a money supply perspective. You are not allowed to create money without taking out a loan.
dillondoyle 6y ago
Does schwab? I've gotten notices for selling stock before it settles
- jdhzzz 6y ago
  Don't believe so. I got hellbanned for selling, buying something new, and selling that all in one day. Hey, I'm easily confused. You can sell and immediately buy with the proceeds but cannot sell the newly purchased shares until the original trades settle. Fortunately they make it easy to create new accounts and transfer from one to another. Now my banned account is empty and I'm more careful.
  - dillondoyle 6y ago
    Yikes i'm sorry. They definitely give a few chances I also don't really understand. I now always try to have extra cash inside the actual investment account. Maybe you can try to change the sell order (first in first out -> sell the oldest share first)
omgJustTest 6y ago
You can, its called a cash account. IMO this is better than a margin account, especially for <20k$. Below this threshold margin accounts are usually treated nearly identical to cash accounts.. except you can _buy_ when you shouldn't be able to... and then have to hold that security for 1-3days for the funds to clear. In a cash account when you sell, the funds must settle for 2-3days... meaning you can't use those funds for purchases. It keeps people who are cash short out of the market, rather than in... that's the main difference for small accounts.
- deleted 6y ago
  [deleted]
nimos 6y ago
There are certain options you can't trade without a margin account because they are fundamentally on margin no matter what. Whether or not you can "day trade" on a cash account would probably just be equivocating about what "day trading" is. It definitely does limit your ability to very quickly enter/exit positions.
charrondev 6y ago
In Canada I use WealthSimple and they don’t even have margin accounts. In the past I’ve been pissed about the 3 day hold period of funds coming in but I totally get it now.
- ckdarby 6y ago
  I'm waiting for when their cash account allows direct deposit and then they support instant transfer from Wealthsimple cash account into Wealthsimple trade.
siruncledrew 6y ago
There's various brokerages that don't give registered users margin accounts by default and it's something that users specifically have to ask for (similar to asking for options trading).
- astura 6y ago
  Which ones? I thought being able to buy securities immediately after initiating a transfer before that transfer settles was industry standard? I know (at least) Fidelity and Vanguard let you do so with just a normal run-of-the-mill brokerage account. My husband once accidentally messed up his transfer to Vanguard and it didn't go thru and he already purchased mutual funds with that money he meant to transfer. It told him he had a trading violation and the lady on the phone said having just a single trading violation didn't matter.
  - jacobsenscott 6y ago
    With chase you need to request a margin account. I really like their brokerage account. They never blocked GME, and the don't hide anything.
  - refurb 6y ago
    Hmmm... my Vanguard account doesn't work that way. If I initiate a buy using external funds (from my bank), the actual purchase doesn't happen until the funds clear in ~2 days. It will just show "pending".
    - pertymcpert 6y ago
      You sure that’s not the T+2 rule?
      - refurb 6y ago
        That’s exactly what it is. What confuses me is the comment I was replying to doesn’t seem to have this for their Vanguard account?
PhantomGremlin 6y ago
The general info you cite is great, but I'm disappointed in the Zacks stuff. The US moved to what's called T+2 settlement (trade + 2 days) in 2017, over 2 years ago. Zacks still talks about T+3. In contrast, your Fidelity link gets it right. Someone might say "so what!", but Zacks purports to be a financial advice website. They should know better. It makes me question the accuracy of the rest of their website. https://en.wikipedia.org/wiki/T%2B2 https://en.wikipedia.org/wiki/T%2B2 https://www.sec.gov/news/press-release/2017-68-0 https://www.sec.gov/news/press-release/2017-68-0
- Kranar 6y ago
  Zacks doesn't make any such claim, in fact Zacks very clearly states that settlement is T+2 and points out that this change happened in 2017. Directly from the link: "In 2017, the SEC amended the T+3 settlement cycle to a T+2 settlement cycle, effectively shortening the three-day rule to a two-day rule."
  - PhantomGremlin 6y ago
    You and I must be reading different documents. You must have navigated elsewhere. Please provide your exact link. I clearly see the following. Directly from the link of the poster I responded to: https://finance.zacks.com/tax-rules-use-proceeds-stock-sales-buy-new-stocks-8465.html https://finance.zacks.com/tax-rules-use-proceeds-stock-sales... Tax Rules on How to Use Proceeds of Stock Sales to Buy New Stocks ... For example, imagine that on Monday you have nothing in your brokerage account except shares of a specific stock, which you sell that morning for $10,000. The trade will settle on Thursday. They just described T+3 not T+2!
    - jfk13 6y ago
      It's further down the (infinite-scrolling) page, under the title "Why Wait Three Days to Sell Stock?". Looks like much of the material there is older, but this section at least has been updated to mention the change to T+2. (Looks like a more direct link would be https://finance.zacks.com/wait-three-days-sell-stock-11114.html https://finance.zacks.com/wait-three-days-sell-stock-11114.h...)
thinkmassive 6y ago
You can day trade on a cash account as long as you have enough cash to cover all your positions for the time it takes them to settle (T+2)
- Kranar 6y ago
  No you really can't because of what is known as free riding. Consider a scenario where you have a cash account with say 100 dollars and you buy 1 share of stock X for 100 dollars. That's it, you can no longer trade for two days. Because trades take two days to complete, if you have a cash account you need to wait that full two days before you technically own the shares and can sell it. Until that two day elapses, your account has 0 dollars in it. This is known as free riding: https://en.wikipedia.org/wiki/Free_riding_(stock_market) https://en.wikipedia.org/wiki/Free_riding_(stock_market) Now if you have 100 dollars in your account and you buy stock A for 30 dollars, then your account will have 70 dollars left that you can use to trade with, but this is an incredibly inefficient and impractical way of trading.
  - handmodel 6y ago
    That simply means they haven't had time to settle yet
  - discodave 6y ago
    That is exactly what the person you're replying to meant.
    - takeda 6y ago
      Perhaps I don't understand it, but I think parent poster gave bad example of what s/he tried to say. My understanding is that if you had $100 and you purchased stock for $100 and it went up in few hours to $120 and you decided to sell it, so you can purchase something else. You can't you have to wait 2 days. Of course if you have enough money you will have buffer to account for that, but it makes it harder to do day trading when everything is delayed by 2 days.

mrits 6y ago

I have a margin account but E*Trade let me day trade for years without one. There were rules like you couldn't buy and sell the same stock in the same day but you also got hundreds of violations before they suspended this ability. So if you are more of a day-swing trader and not doing high volume it worked well enough for me.

garmaine 6y ago
The point is you are technically margin-trading when you do that. From the broker's perspective you are trading on margin until your prior trades settle.
- evolve2k 6y ago
  As a onboarding hack I can see this as a great idea to help people get their first $100-$1000 on the market fast. But the chance of an eventual margin call is almost certain in the long run (as has happened here). It’s time to talk ethics in tech, this was a design decision to not unwind this once the user was embedded or otherwise clarify this upfront. Margin call risk totally must be disclosed and is legally required (in Australia where I am) to be disclosed by any investment professional you paid to setup this sort of arrangement. I’d be fairly confident the same applies to US investment advisers. It’s totally the sort of ‘feature’ that the user could have been advised of around say the 30 day mark. “We’ve set you up a margin account that’s valid for your first $1000, please now confirm if you’d like to continue to carry a margin call risk otherwise were converting you to a standard account.” It’s also super common for margin facilities to allow investors carrying the risk, 24-48 hours to contribute to retain the position, auto-selling out is a last resort.
  - garmaine 6y ago
    It’s not just on-boarding. People expect to make a transfer from their bank account and have insta-credit to their RH tradable cash balance. This is a core feature of their app.
    - grey-area 6y ago
      That is possible in many countries without margin (using faster payments and open banking).
      - ChrisIsTaken 6y ago
        Australia has had real time transfers on our reserve bank's "New Payments Platform" since 2018. Transfers are finalized in a few hundred milliseconds. And we're actually half a decade behind most of Asia and Europe.
    - fspeech 6y ago
      This is not specific to margin accounts and is not what is meant by margin. Cash account with any broker (that I know of) would also give you the same feature -- that is you have access to the cash for trading before the transfer is complete.
      - garmaine 6y ago
        If they are letting you trade with instant credit, then under the hood there ARE margin loans going on. To be compliant with SEC regulations the broker must be pulling on short term margin loans from a bank to cover the securities being bought without hard cash in hand.
        fspeech 6y ago
        No they are exposed to you as a credit risk. They trust you that you intend to transfer the money in good faith. As long as the transfer is complete at no point they make a loan to you because trade settles at T+2, i.e. cash is not required on the date of trade. It is the loaning aspect that is regulated. Free riding is forbidden by Reg-T of the FRB. Your broker's settlement risk is not considered a margin loan either. It is a credit risk that they satisfy by depositing funds with the DTCC for a tiny fraction of the notional value. The difference between the credit risk and the margin loan is that in the vast majority (say > 99%) of times the credit risk does not become a loan. You don't need to punish all the people acting in good faith for the action of a few. The regulation on free riding comes from a money supply perspective. You are not allowed to create money without taking out a loan.

dillondoyle 6y ago

Does schwab? I've gotten notices for selling stock before it settles

jdhzzz 6y ago
Don't believe so. I got hellbanned for selling, buying something new, and selling that all in one day. Hey, I'm easily confused. You can sell and immediately buy with the proceeds but cannot sell the newly purchased shares until the original trades settle. Fortunately they make it easy to create new accounts and transfer from one to another. Now my banned account is empty and I'm more careful.
- dillondoyle 6y ago
  Yikes i'm sorry. They definitely give a few chances I also don't really understand. I now always try to have extra cash inside the actual investment account. Maybe you can try to change the sell order (first in first out -> sell the oldest share first)

omgJustTest 6y ago

You can, its called a cash account. IMO this is better than a margin account, especially for <20k$. Below this threshold margin accounts are usually treated nearly identical to cash accounts.. except you can _buy_ when you shouldn't be able to... and then have to hold that security for 1-3days for the funds to clear. In a cash account when you sell, the funds must settle for 2-3days... meaning you can't use those funds for purchases. It keeps people who are cash short out of the market, rather than in... that's the main difference for small accounts.

deleted 6y ago
[deleted]

nimos 6y ago

There are certain options you can't trade without a margin account because they are fundamentally on margin no matter what. Whether or not you can "day trade" on a cash account would probably just be equivocating about what "day trading" is. It definitely does limit your ability to very quickly enter/exit positions.

charrondev 6y ago

In Canada I use WealthSimple and they don’t even have margin accounts. In the past I’ve been pissed about the 3 day hold period of funds coming in but I totally get it now.

ckdarby 6y ago
I'm waiting for when their cash account allows direct deposit and then they support instant transfer from Wealthsimple cash account into Wealthsimple trade.

siruncledrew 6y ago

There's various brokerages that don't give registered users margin accounts by default and it's something that users specifically have to ask for (similar to asking for options trading).

astura 6y ago
Which ones? I thought being able to buy securities immediately after initiating a transfer before that transfer settles was industry standard? I know (at least) Fidelity and Vanguard let you do so with just a normal run-of-the-mill brokerage account. My husband once accidentally messed up his transfer to Vanguard and it didn't go thru and he already purchased mutual funds with that money he meant to transfer. It told him he had a trading violation and the lady on the phone said having just a single trading violation didn't matter.
- jacobsenscott 6y ago
  With chase you need to request a margin account. I really like their brokerage account. They never blocked GME, and the don't hide anything.
- refurb 6y ago
  Hmmm... my Vanguard account doesn't work that way. If I initiate a buy using external funds (from my bank), the actual purchase doesn't happen until the funds clear in ~2 days. It will just show "pending".
  - pertymcpert 6y ago
    You sure that’s not the T+2 rule?
    - refurb 6y ago
      That’s exactly what it is. What confuses me is the comment I was replying to doesn’t seem to have this for their Vanguard account?

PhantomGremlin 6y ago

The general info you cite is great, but I'm disappointed in the Zacks stuff. The US moved to what's called T+2 settlement (trade + 2 days) in 2017, over 2 years ago. Zacks still talks about T+3. In contrast, your Fidelity link gets it right. Someone might say "so what!", but Zacks purports to be a financial advice website. They should know better. It makes me question the accuracy of the rest of their website. https://en.wikipedia.org/wiki/T%2B2 https://en.wikipedia.org/wiki/T%2B2 https://www.sec.gov/news/press-release/2017-68-0 https://www.sec.gov/news/press-release/2017-68-0

Kranar 6y ago
Zacks doesn't make any such claim, in fact Zacks very clearly states that settlement is T+2 and points out that this change happened in 2017. Directly from the link: "In 2017, the SEC amended the T+3 settlement cycle to a T+2 settlement cycle, effectively shortening the three-day rule to a two-day rule."
- PhantomGremlin 6y ago
  You and I must be reading different documents. You must have navigated elsewhere. Please provide your exact link. I clearly see the following. Directly from the link of the poster I responded to: https://finance.zacks.com/tax-rules-use-proceeds-stock-sales-buy-new-stocks-8465.html https://finance.zacks.com/tax-rules-use-proceeds-stock-sales... Tax Rules on How to Use Proceeds of Stock Sales to Buy New Stocks ... For example, imagine that on Monday you have nothing in your brokerage account except shares of a specific stock, which you sell that morning for $10,000. The trade will settle on Thursday. They just described T+3 not T+2!
  - jfk13 6y ago
    It's further down the (infinite-scrolling) page, under the title "Why Wait Three Days to Sell Stock?". Looks like much of the material there is older, but this section at least has been updated to mention the change to T+2. (Looks like a more direct link would be https://finance.zacks.com/wait-three-days-sell-stock-11114.html https://finance.zacks.com/wait-three-days-sell-stock-11114.h...)

thinkmassive 6y ago

You can day trade on a cash account as long as you have enough cash to cover all your positions for the time it takes them to settle (T+2)

Kranar 6y ago
No you really can't because of what is known as free riding. Consider a scenario where you have a cash account with say 100 dollars and you buy 1 share of stock X for 100 dollars. That's it, you can no longer trade for two days. Because trades take two days to complete, if you have a cash account you need to wait that full two days before you technically own the shares and can sell it. Until that two day elapses, your account has 0 dollars in it. This is known as free riding: https://en.wikipedia.org/wiki/Free_riding_(stock_market) https://en.wikipedia.org/wiki/Free_riding_(stock_market) Now if you have 100 dollars in your account and you buy stock A for 30 dollars, then your account will have 70 dollars left that you can use to trade with, but this is an incredibly inefficient and impractical way of trading.
- handmodel 6y ago
  That simply means they haven't had time to settle yet
- discodave 6y ago
  That is exactly what the person you're replying to meant.
  - takeda 6y ago
    Perhaps I don't understand it, but I think parent poster gave bad example of what s/he tried to say. My understanding is that if you had $100 and you purchased stock for $100 and it went up in few hours to $120 and you decided to sell it, so you can purchase something else. You can't you have to wait 2 days. Of course if you have enough money you will have buffer to account for that, but it makes it harder to do day trading when everything is delayed by 2 days.