Settlement Date Restrictions to
Day-Trading in Cash Account
Settlement dates for stocks are three
business days (also a rule established by a government authority)
during which time your money will be unavailable to trade. If you try
to trade with this settlement money, you are likely to receive severe
warnings from your broker, potentially resulting in them locking you
out of your account for 90 days.
What this means is if you trade with
all your available cash in one day, then you will be unable to trade
again until your trades have settled three business days later, not including the trade date. If you trade all your cash on Monday, your
funds will not settle until Thursday.
The benefit of having a margin account
is that you can trade with borrowed money during
this settlement period, allowing you to day-trade every day with all your
money. Once you have sufficient funds, day-trading with a margin
account is a good idea so you can still trade while funds are being
Cash accounts also have limits to the
types of trades you can make.
Additional Limits to Day-Trading with
In a cash-only account, you cannot
borrow money or stock. This fact means that you cannot practice short
selling stock in a cash account. If a stock is going down, you will
just have to wait for it to start going back up in order to attempt
to make a profitable trade.
Short selling stock is another benefit
of a margin account, allowing you to profit from both the ups and
downs of the market. If you have at least $2,000 available for
trading, ideally $3,000 so you don't drop below the $2,000
minimum, you might consider practicing short selling stock in a
margin account. Just be careful to not day-trade more than 3 times per week (3 total trades) or risk being labeled as a pattern day-trader. Removing this label often requires no day-trading for several
How to Practice Day-Trading
The best way to practice day-trading is
to trade with a small amount of money (less than $100) at a
loss due to commission, in order to test and develop strategies. Your goal should be to attempt to gain a 1% or 2% increase, which is
the strategy that long-term day-traders use.
On $100, that's only a $1 to $2
increase, which would not even cover the trading fees, but it also
reduces your risk, since you might only lose $1 to $2 on the trade.
It also forces beginning investors to truly practice strategy, since
they are not focused on trying to cover the trading fees. A
beginning trader might neglect a 2% increase, hoping for a 2.1%
increase so they can make some profit on their trade, only to see
that 2% increase disappear.
Ultimately, if your goal is to make money
in the beginning while you are learning, then you will likely give up
or fail to learn well enough to make a profit on a larger amount.
Remember that most investors lose
money. If you want to be one of the few traders that makes a
consistent profit, you need to develop your trading skills, which
will take time. Beginning investors will often try to learn
day-trading with larger amount of money, and then lose large amounts
of money due to their inexperience.
Best Broker to Practice Day-Trading: Robinhood
The best broker to practice day-trading
is Robinhood, which offers a $0 commission on all trades resulting in
your $1 increase on $100 actually being profit. Rather than making
money directly from you, they operate like a traditional brokerage that
raises funds like a bank. They earn interest on uninvested money, and they also profit from people investing directly into them as a business. More than $66 million has been raised by people wanting a piece of the company.
the time of writing this article, they only offer cash accounts, but
they are beginning to test margin accounts. Trading with a margin account will incur a small interest charge when you borrow money by trading on margin.
Nevertheless, they will likely remain the cheapest broker for a long time, allowing you to focus on
practicing and developing strategy, as well as making profit. Currently, their trading platform is
only available for the Google Android OS and Apple iOS. There is no Robinhood platform for a traditional computer or
If you do not currently own an Apple iPad or Google Tablet, spending a little bit extra in order to access
virtually unlimited free trades through Robinhood's app is well worth
Here's the link to Robinhood's website. Note:
No one from InvestGrowRepeat.com receives any commission from referring
Robinhood. This recommendation is from personal experience of using Robinhood's trading app, and from a sincere appreciation of $0
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