Margin account with Ameritrade: how much do they front for you?

Question

I now have a cash account I just started with Ameritrade. I barely have any money deposited thus far, but if I want to get into day trading, I understand they require a $2,000 deposit. Will they charge $9.95 per trade? How much money do they front you? Is it based on the amount of cash you have in your account? Can I trade a security more than 4 times a week in this type of setup? Thanks.

Answer 1

1) In order to daytrade (regularly), you need to have at least $25,000 in a margin account.  So no, with $2,000, you cannot trade as often as you like (if they're daytrades).  Four or more daytrades in 5 business days will get you labeled a "pattern daytrader" and you'll be forced to deposit $25k or have your account restricted.

2) You CAN trade 4+ times a week in any margin account as long as they're NOT DAYTRADES.  A daytrade is the opening and closing of the same position on the SAME DAY.  For overnight or longer trades, you can trade as often as you like.

3) With a regular margin account, you're given 2x buying power.  E.g., with $2000 in your account, you can buy $4000 worth of stock.  If you have at least $25k in your margin account and you've been classified a pattern daytrader, you're usually given 4x buying power. (The 4x buying power is for the DAY only.  For overnight positions, you're still limited to 2x margin).

Answer 2

Hey Interest,

Ameritrade is going to charge you $9.99 + $0.75 per contract for internet trades which is a competitive price for a full service broker. You can certainly find less expensive option sites if that's all you plan on trading. WARNING: Don't call Ameritrade to make your trades, they will charge you $34.99 + $0.75 per contract if you use the Interactive Voice System and $44.99 + $0.75 if you go through a live Broker. Do all of your trading via their online platform. If you want to compare several brokerages and how much they charge for stock, option & fund trades, start at http://www.money-and-investing.com/Onlin... and then click on the In-Depth review link for any that sound interesting.

As far as fronting you money, I think you're asking about a margin account. They aren't going to front you anything, a margin account is basically just a short-term loan that day-traders and speculators use to make leveraged trades. Every online brokerage has cash requirements for trades, you have to have enough to cover any trading that you do, they won't let you borrow a bunch of money and gamble on options or stocks unless you have cash to cover in the account.

You can trade securities as frequently as you like, that's the main way that online brokerages make money. They'll actually encourage you to trade frequently, the only limit on your number of trades is how much you're willing to spend on transaction costs.

Interest, you're likely young, so my breath will be wasted, but I recommend to investors (beginner and experienced investors) to choose long-term strategies like growth, index or value investing. Master one of these strategies and you will have a wealth building tool for a lifetime. Study strategies before you dive in and start speculating, you'll just lose a lot of money very quickly. Do your homework before you take any big risks so that you can avoid the mistakes that the rest of us made at your age. Here's a review of the 8 most popular strategies http://www.money-and-investing.com/Stock...

Cheers and Best of luck to you,

Odd Lot

Answer 3

I would like to add to LongArm's comment.

He's correct, but he neglected to mention that these are regulations, not Ameritrade's rules.  Any other broker will do the same thing.