You can buy and sell a stock on the same day as many times as you want – that’s what daytraders do. However, your account must be approved for daytrading. Otherwise, your broker will restrict your trading if you are flagged as a “pattern daytrader” per the Securities and Exchange Commission (SEC)'s rules.
As long as you're approved as a daytrader, you can buy and sell stock as often as you want on the same day. Doing so when you're not a daytrader, however, can result in trading account restrictions.
Flagging As a Pattern Daytrader
You will be flagged as a pattern daytrader if you make four or more day trades in five business days in your margin account. Since daytrading is considered risky, your broker must approve your account for daytrading based on your resources and experience. Without the approval, your account may be frozen.
Getting a Daytrading Account
You need $25,000 in a margin account to qualify. The $25,000 can be cash or equity. That means if you are fully invested and on margin, your account minimum net worth must remain above $25,000, otherwise you will receive a margin call from your broker. A margin call is a demand to deposit funds into the account within five business days.
Daytrading Account Margin Requirements
Daytrading accounts have different margin requirements. You can open a regular margin account with $5,000, buy $10,000 worth of stock and pay the balance within three business days. You must have the entire $25,000 in your daytrading account before you can make any trades, but your daily buying power is four times your net equity – that is, a $25,000 daytrading account has a daily buying power of $100,000.
When You're Not a Daytrader
Some investors meet pattern daytrader criteria even if they don't intend to daytrade. For example, you buy a stock at the opening only to see it sag throughout the day. You then decide that it wasn’t such a good buy after all and sell at the end of the day. There's your day trade.
It’s best to get approved for daytrading, if you can, even if you don’t intend to daytrade. You don’t want to get stuck with a falling stock you can’t sell because your broker has restricted your account.
Making the Decision to Daytrade
Daytrading can be lucrative, but it requires a lot of skill and dedication. You can’t expect to daytrade casually for half an hour a day and out-trade professionals who are doing it day in and day out. You may eventually grow into daytrading as your experience and account balance grow, but to start investing by daytrading is an invitation for disaster.
- How to Calculate an Initial Margin Requirement
- SEC Stock Trading Restrictions
- Day Trading Options in IRA Accounts
- How do I Compare Stock Brokers?
- How to Calculate Maintenance Margin
- Does Using Your Margin Account Hurt Your Credit?
- How do I Buy Closed-End Funds Without a Broker?
- Leveraged ETF vs. Using Margin