Margin

The only way for me to purchase a stock and sell the stock on the same day and utilize the sales proceeds was to have a margin account. The account has no fees, but one needs to have their brokerage to qualify them for a margin account. Usually brokerage asks participants financial questions and checks their credit history before they are eligible for a margin account.

Within a margin account there are a few basic rules that must be followed at all times. I made a mistake by saying "few" when in fact a margin account can get very confusing.

Mistake 1) When I obtained my margin account I thought I could immediately trade stocks with no limits other than how much I can borrow. There is a restriction of how much one can borrow when performing day trades. The restriction is four times the present day trader's buy power. Buy power is essentially the amount of cash and margin in the trader's account. Of course there is many variables involved in computing one's buy power. (For beginners I advise you to look further into this yourself, the rules of a margin account, before you obtain one.)
Of course my mistake was not learning all the rules involved.

Is it a Pattern or Not?

There are two types of equity traders. Pattern day traders and Non-pattern day traders. To qualify as a pattern day trader the trader must execute four or more trades with the use of margin within five trading sessions. When you purchase a equity and sell it, there lyes two trades. Hence if you open and close two particular equities within five trade sessions, you automatically qualify as a pattern day trader. Any quantity of trades less than four within five sessions is a Non-pattern day trader. It is very important to know which type of trader you are because there are minimum equity, dollars, requirements enforced by your brokerage. In the case of mine, a Non-pattern day trader must have at least $5,000 dollars in their account in order to perform margin trades. A pattern day trader must have at least %25,000 dollars in their account in order to trade on margin. If at any time owner of the account does not have the minimum equity in their account their brokerage will send him/her a "margin call."

Basically a margin call is a warning that you have to apply a certain amount of equity into the account if you want the account to be intact. For instance if you were a pattern day trader and your account net total equity is $26,000. It just so happens you purchase a stock and you closed the stock with a lost of $2000. Your account total is now $24,000. By the end of the trading session you were unable to achieve $25,000 then a margin call is issued to you. The margin call asks you to provide an additional $1000 in equity in order to not have the account restricted. The time you have to resolved the margin call ranges from three to five days, depending on the type of margin call. The example I gave is just one way of encountering a margin call.

When a margin account is restricted owner usually losses their possessions of stocks that are still open. Their brokerage will sell the owners open stocks without notification and all of this is legal. Whether or not the stocks had a gain or loss the brokerage will automatically sell stocks until the owner has achieve enough cash/margin in order to satisfy the margin call. Another restriction is the day trader buy power is no longer a factor of four but a factor of one. In the case described earlier the owner with $24,000 would have this restriction. Until owner is able to satisfy their margin call will the restrictions be uplifted.

Confused yet. I believe one can understand margin rules and regulations much better if they themselves get involved. Get a margin account if you are qualified only until you feel comfortable and knowledgeable about margin. By using margin you can actually see what is involved. Today I am still learning and I will elaborate continuously about margin as I trace back my pass trades. Next session I will talk about how I lost nearly $10,000 in two days.

Before I end, a few basic traders terminologies may need to be define. "open" stock means you just purchase the stock and holding it within your account. When you have a "closed" stock it means you have sold the stock and no longer holding it within your account.

You can have "stock" be also called "equity" and have "equity" be defined as your net amount in your brokerage account.