Day trading margins allow traders to enter and exit the market on the same day with smaller margin requirements. Futures brokers may allow day trading clients to post day trading margin only, which is about half of normal overnight margins. The trader is responsible for any losses incurred, and day trading margins in futures can be a smaller fraction of the traded value than in the stock market. The SEC defines a pattern day trader in the stock market and requires a minimum of $25,000 USD in day trading margins.
Margin is a term used in the stock and futures trading community and refers to a yield obligation rather than the entire amount traded. The US exchanges allow for small margins for traders who enter and exit the market on the same day, called day trading margins. Futures brokers may, but are not required to, allow their day trading clients to post day trading margin only. These margins are about half of normal overnight margins. Other countries may have different margin requirements and/or rules that do not allow for low daily trading margins.
The trader is responsible for any losses he may incur whether or not they exceed the margin amount he has posted and whether or not he has sufficient funds in his account to cover losses. Day trading margins in futures can be a much smaller fraction of the traded value than in the stock market. For example, day trading margins on 10-year US Treasuries are often less than $1,000 US Dollars (USD) per contract, and each contract has a face value of $100,000 USD. The $25,000 USD the trader needs to send in to trade $100,000 USD worth of stock will allow him to trade $2.5 million USD worth of 10-year US Treasuries.
Many US futures brokers accept as little as $5,000 USD to open a futures trading account where the trader can use day trading margins. The broker has broad discretion in deciding which trading activity qualifies for day trading margins. Many brokerage firms define a day trade as any trade opened and closed during normal US trading hours. The actual amount of margin required for each contract is set by the exchange and is based on the volatility and risk of the instrument traded. For an up-to-date list of regular US margin requirements, the CME Group is a good resource.
Day trading in the stock market differs from day trading in the futures markets. The United States Securities and Exchange Commission (SEC) defines a pattern day trader as one who executes four or more trades in five business days in a margin account and who accounts for more than 6% of his or her trading activity for the five days. Day trading margins must meet the SEC requirement of at least $25,000 USD. The maximum leverage for a day stock trader is four to one – he can trade up to $100,000 USD worth of stock on his minimum $25,000 USD account.
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