Day trading question..?

Question

I understand that day traders who buy on margin do not hold their stocks overnite so they won't get charged for the interest...but if the rate is 7-8%(APR), then let's say $100,000 for one day is around $20?..so what's the big deal?? Am I wrong?

Answer 1

The problem is nothing to do with the interest that will be charged.  As a day trader you are given 4x your New York excess everyday for trading.  You can use that for intra-day trading only.  If you hold stock that was purchased using more than the normal 2x that a typical margin account gives you then you will be in a fed call and have to send cash to your account.  If you do not send the money you will be placed into a cash only status for 90 days.  

You cannot appreciate out of this call, you cannot sell securities to get out of the call.  Sending cash is the only way.

So...yeah...you pay some interest, but worse you might bugger your day trading status.  Check rule 2520 for more info on pattern day trading.

Answer 2

No, that's not the main reason.

I live in Paris and day trade French stocks. The French markets close at 5:30 PM, but the Nasdaq at 10PM. A lot can happen in those 4.5 hours!