Day trading started becoming popular in the early 2000’s, largely due to the rise of online brokers. In the early days, there were very little rules, but the game has changed since 2001. Now, the rules are based on the number of trades a person makes in a certain amount of time.
TradeKing allows people to day trade, but there are certain guidelines they have to follow, or certain restrictions might be placed on their accounts. But how do they determine if someone is a day trader?
According to TradeKing, a “Pattern Day Trader” is someone who makes more than three trades in a five-day period (this is five business days, by the way). Once that happens, he or she permanently labeled as a “Pattern Day Trader,” according to the rules laid out by TradeKing.
What is Day Trading?
A day trader is someone who buys and sells stocks within 24 hours in order to make a profit, and he or she does this repetitively throughout the day. As I said before, it started becoming popular in the early 2000’s, as the online world started coming to life.
While TradeKing does allow for this type of trading, there are certain rules that have to be followed. They have to keep a certain amount of equity in their account (what is called a “liquidation value”) at all times. The minimum amount of equity they have to keep in their account is $25,000, or it can be restricted. If a day trader does allow his or her equity to fall below this amount, he or she must keep all of his or her current stocks until the next day.
Advantages of Being a Pattern Day Trader
In spite of the account restrictions that come with it, there are some advantages to being a Pattern Day Trader on TradeKing. It gives the person a little more leverage on their account, especially when it comes to margin trading. In fact, Pattern Day Traders can make twice as many margin trades as a standard TradeKing account. So, there is the potential to make more money on a trade.
Because margin trading allows you to use borrowed money to purchase stocks, it can be an advantage, but it’s a double-edged sword. Margin accounts must be used wisely because, while the potential gains can be tremendous, the potential losses can be devastating. You have to know what you’re doing, and you have to make smart decisions about every trade you make on a margin account.
In this type of trading, it’s important to monitor and control your expenses, and you need to be careful about the types of trades you make. There is a considerable amount of risk in buying and selling stocks, and it is more often the case when it comes to day trading. So, managing your market risk is essential to your success.
It should be obvious that day trading is riskier than average, even when it comes to stocks in general. But as long as you know what you’re doing, and you make smart trading decisions, you can make it work. TradeKing does have certain rules that you have to follow. They have to keep at least $25,000 of equity in their accounts at all times, or they could be subject to certain restrictions – mainly being obligated to keep all accounts open until the next day. Buying on margin can also be risky, but it can also come with tremendous rewards – that is, if you’re smart about how you trade.