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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 y

by 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.

by mrits 6y ago

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.