Day Trading Margins

Písmo: A ++ A --

The question we are getting quite often; there seems to be some confusion about daytrading margins;

You may have been told that margin requirements are ment to protect the client (in a way, they are).

The real purpose of margin requirements is to protect the brokerage firms from having to deal with accounts that fall below zero, and, with this, to protect the integrity of the clearing system.

The exchanges set minimum margin requirements, which are quite frequently changed, depending on market volatility. Each brokerage firm can ask for higher margins, at their discretion. You will find that large firms, such as a big stock firms, often have margin requirements twice the minimums, while the smaller commodity firms usually stick with the minimums.

There are no exchange-imposed margin requirements for daytrading. Yet, the brokerage houses have to have some kind of control over daytrading activities. they then set their own daytrading margins.

Typically, these daytrading margins range from 30 – 50 % of overnight margins.

If you trade electronically, or thru a selfdirected discount account, you will most likely find the daytrading margins to be at the higher end (because the firm is worried about your trading too agressively).

If you trade with a full service broker, you will often find your broker willing and able to let you day trade with margin equity below the firms guidelines. why? Because your trading is clearly visible to him, and he knows at all times what your exposure is, provided you use stop loss orders. (obviously an S&P daytrade with a 200pts stop loss order doesnt need to be backed by 8k equity).

This situation may vary from firm to firm, and from broker to broker. Check with your broker, and find out what you can do.

A final comment, in the interest of prudency; daytrading with an undermargined account is an aggressive practise. While it can sometimes lead to spectacular results, it most often winds up in failure.

Tom out