Due to an overwhelming bombardment of questions about Day Trader Status I've made a decision to compose this newsletter to look at these problems.
No matter whether you know about it or not, you don't want to accidentally learn about Day Trader Status by a warning from your brokerage firm stating that you are now tagged as a Day Trader!
What's a Day Trader?
A Day Trader is someone who does four intra-day trades in five consecutive trading days. Allow me to address some terms here to help you understand this better:
Intra-day trade: A trade that is certainly opened and closed within the same trading day (round trip).
Five Consecutive Trading Days: These are generally calendar days that the market is open, all in a row. For example: If the market was open from Monday through Friday, that would be five consecutive days.
Then we would have Tuesday through Monday for the next five consecutive days (unless Monday happened to be a holiday, in that case it would then be Tuesday through Tuesday.
Next, we would have Wednesday through Tuesday, and so on. The key is five trading days consecutively.
Tips on how to Avoid It
One of my favorite students, Debi D, taught me to use a calendar to record my intra-day trades. By putting an "X" on the day you do intra-day trading, (2 X's if you do two, 3 X's if you do 3 in that day) you can avoid accidentally getting to four by looking at your calendar.
Be sure you mark the specific days the market is closed on your calendar. Your brokerage firm will most likely apply the NASD requirements of sustaining at least $25000 inside your trading account - and you've got 5 days to abide by that rule.
Tax Consequences with the IRS
Traders that purchase and sell securities regularly can report their purchases and sales which results in capital gain and loss, as well as their deductible expenses.
If you're new to investing and are curious about business mergers, the importance of a public shell, or even putting your money into a company like capital pacific, it's best to call a broker to help you make the most effective choices with your money.
Pleasant Trading!
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