The Basics of Day Trading
Day trading is a popular practice among active investors who buy and sell securities within the same day. The goal is to make a profit by taking advantage of small price fluctuations. However, day trading requires a high level of knowledge and skills, as well as discipline and risk management strategies.
What is a Day Trade Minimum Equity Call?
A day trade minimum equity call is a requirement by brokerage firms for traders who engage in day trading. TD Ameritrade, one of the largest online brokerages, has specific rules regarding this requirement. Essentially, it means that traders must maintain a certain amount of equity in their accounts to continue day trading.
TD Ameritrade’s Day Trade Minimum Equity Call Rule
To day trade on TD Ameritrade’s platform, traders must maintain a minimum equity of $25,000 in their accounts. This is a standard requirement set by the Financial Industry Regulatory Authority (FINRA). If a trader fails to meet this requirement, TD Ameritrade will issue a day trade minimum equity call.
What Happens When You Get a Day Trade Minimum Equity Call?
When a trader receives a day trade minimum equity call, they must deposit additional funds into their account to meet the minimum equity requirement. Failure to do so within five business days will result in a 90-day restriction on day trading activities. During this time, traders can still buy and sell securities, but they cannot execute more than three day trades within a five-day period.
How to Avoid a Day Trade Minimum Equity Call
To avoid a day trade minimum equity call, traders can either maintain a minimum equity of $25,000 in their accounts or limit their day trading activities. Alternatively, traders can consider using a cash account, which does not have a minimum equity requirement.
Benefits of a Cash Account
A cash account is a type of brokerage account where traders use their own funds to buy and sell securities. Unlike a margin account, which allows traders to borrow money from the brokerage firm, a cash account does not have a day trade minimum equity call requirement. This means that traders can engage in day trading activities without having to worry about maintaining a specific equity balance.
Conclusion
Day trading can be a profitable but risky practice. It requires a high level of knowledge and skills, as well as discipline and risk management strategies. TD Ameritrade’s day trade minimum equity call rule is a standard requirement set by FINRA. To avoid getting a day trade minimum equity call, traders can either maintain a minimum equity of $25,000 in their accounts, limit their day trading activities, or consider using a cash account.
