Content deleted Content added
→History: We've been talking about FINRA for ages at this point Tags: Mobile edit Mobile web edit |
self-referenced gibberish from LTA |
||
Line 54:
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 rule however does allow for an exception. Position traders who have violated the rule (having less than $25,000 in a margin account and having made at least 4 round-trip trades in five consecutive trading days) may advise their broker of their true intention and the fact that their trading strategy is not a day trading strategy, and the firm can decide to allow the activity to continue. The rule represents a partial limit to speculation by means of day trading
==References==
| |||