Day Trading on Margin...

[Timdrum]

How is it done exactly? For instance, say I open my margin account and put up 5000 of cash and have equal margin credit available. To actually day trade several times a week (not pattern) with the full 5000 amount each trade, do I use the margin when I trade and leave the cash alone? Or do I use the 5000 cash for each trade, and the margin covers the unsettled funds so I avoid free-riding? Or is it done another way?

Hopefully I make sense... Thanks!

 

[Findmelost]

How is it done exactly? For instance, say I open my margin account and put up 5000 of cash and have equal margin credit available. To actually day trade several times a week (not pattern) with the full 5000 amount each trade, do I use the margin when I trade and leave the cash alone? Or do I use the 5000 cash for each trade, and the margin covers the unsettled funds so I avoid free-riding? Or is it done another way?

Hopefully I make sense... Thanks!

Hey man,
I'll try to answer what i think you're asking. So you have 5k, and you want to make a trade on the GBP/USD. say (for arguments sake) the USD is trading at $1.40 per GBP and you think the price is going to change $1.41 (this is 100 pips). Now depending on your broker they may allow you to trade with a margin 200 times what you have in your account, but I wouldn't recommend doing that.

So if you place the trade and make every pip worth £100 buy buying lots, you will stand to gain £10,000 - pretty cool hey. Not cool, because if the trade starts to go against you you start to loose money. You start with 5k, but if price dips by 50 pips, all your cash is gone. The smart thing to do is decrease the number of lots you are buying, therefore decreasing the £ per pip and profit/loss potential.

if you make each pip worth £1 per pip you only stand to make £100 but price would have to move 5000 pips in the wrong direction to wipe you out.

In reality, most traders I know of use stop losses to limit the loss and only risk a small percentage of their capitol. I risk 2%. So with 5k and a 50pip stop loss, I would risk £100, making each pip worth £2 and profit potential would be £200 - not bad.

 

[Rhody Trader]

To actually day trade several times a week (not pattern) with the full 5000 amount each trade, do I use the margin when I trade and leave the cash alone? Or do I use the 5000 cash for each trade, and the margin covers the unsettled funds so I avoid free-riding? Or is it done another way?

Since you mention pattern day trading, I assume you're talking about stocks. In that case, you always first use your cash. You only borrow (margin) for the excess beyond your capital.