Real World  |  JUL 2002

How Does Rule 431 Affect Daytraders? by Paul Carlson

How Does Rule 431 Affect Daytraders? by Paul Carlson Like me, many of you may have been concerned when you received letters from your brokers describing the new minimum margin requirements of $25,000 for pattern daytraders. In those letters, your brokers described the definition of a pattern daytrader as someone who made four day trades in five days. While this definition might not classify you as a daytrader per se, when you looked at your account, you saw several occasions when you would have triggered the rule had it been in effect at that time. You may have only $5,000 or $10,000 in your account, but as a pattern daytrader, you would be required to increase equity to $25,000 or have the account restricted to a cash basis, with stock liquidations as necessary to meet this restriction. What to do? What caused all this? What are the details and ramifications? Is there a way to work around this?

by Paul Carlson