Pattern day trader: Difference between revisions

Revision as of 03:41, 28 October 2018

Revision as of 18:35, 31 October 2018

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The rule may also adversely affect position traders by preventing them from setting stops on the first day they enter positions. For example, a position trader may take four positions in four different stocks. To protect his capital, he may set stop orders on each position. Then if there is unexpected news that adversely affects the entire market, and all the stocks he has taken positions in rapidly decline in price, triggering the stop orders, the rule is triggered, as four day trades have occurred. Therefore, the trader must choose between not diversifying and entering no more than three new positions on any given day (limiting the diversification, which inherently increases their risk of losses) or choose to pass on setting stop orders to avoid the above scenario. Such a decision may also increase the risk to higher levels than it would be present if the four trade rule were not being imposed.

The specific legal restrictions represent a partial limit only to the speculative activity of day trading in view of the fact that in the moral context speculative practices in the financial market are considered negatively as personal behavior and also considering the potential damage to the real economy.<Ref>https://sites.google.com/site/thefinancialspeculation </ref><ref> http://www.jstor.org/stable/2376347?seq=12#page_scan_tab_contents </ref><ref> http://www.newadvent.org/cathen/14211a.htm </ref>

==References==