Investors can use Beanstox Trade to make investing easier and more cost more effective. Some investors will love using Beanstox Trade for a simple approach to investing that they control, perhaps investing 10% of each paycheck. Other investors will love the flexibility of buying the exact amount, perhaps $10 each month, of each stock or ETF they choose. Active investors, steady portfolio builders and others who trade more than once per month, and have the Beanstox Trade membership will really enjoy the cost savings of trades for only $0.01 per share. This section contains stories (not based on actual people) that illustrate how different you could enjoy using Beanstox Trade. We hope you enjoy using Beanstox Trade to build your own investment success stories.
What is a “Pattern Day Trader”?
A Pattern Day Trader (PDT) is someone who effects four (4) or more Day Trades within a five (5) business day period. A trader who executes four (4) or more day trades in this time is deemed to be exhibiting the pattern of day trading (which is defined by FINRA, Financial Industry Regulation Authority) and is thereafter subject to the PDT restrictions.
A day trade is to buy and sell the same security during the same day in a margin account.
If you effect a Day Trade, you will be given a Potential Pattern Day Trader notification warning which will identify how many Day Trades you have and how many Day Trades you have remaining before you are deemed a Pattern Day Trader. It will also spell out the requirements and rectification that you will be allowed to exercise should you be tagged as a “Pattern Day Trader”.
The account holder can wait for the five-day period to end before any new positions can be initiated in the account to avoid being designated a “Pattern Day Trader”.
What are possible cash account violations?
If a security purchased in your cash account is sold prior to being paid for with settled funds in the account, a good faith violation has occurred. The reason it is referred to as a good faith violation is that trade activity is giving the appearance that sales proceeds are being used to cover buy orders when there is insufficient settled cash to cover these purchases. Basically, trade activity indicates that a good faith effort to deposit additional cash into the account will not happen.
Accounts with three good faith violations in a 12-month period must be restricted to purchasing securities with settled cash only for a period of 12 months.
Good faith violation example 1:
Cash available to trade = $0.00
On Monday morning, a customer sells Y stock netting $5,000 in cash account proceeds.
On Monday afternoon, the customer buys X stock for $5,000.
If the X stock is sold prior to Wednesday (settlement date of the Y sale), a good faith violation would be charged as the X stock is not considered fully paid for prior to sale.
Good faith violation example 2:
Settled cash = $5,000
On Monday morning, a purchase is made for $5,000 of X stock.
On Monday mid-day, the customer sells the X stock for $5,500.
Near market close, the customer purchases $5,500 of Y stock.
At this point no good faith violation has occurred because the customer had sufficient funds for the purchase of X.
If Y is sold prior to being paid for (settlement) then a good faith violation will have occurred.
Good faith violation example 3:
Cash available to trade = $10,000 minus cash credit from unsettled activity = $5,000 (proceeds from a sale of stock the prior Friday – trade settles on Tuesday)
On Monday morning, customer purchases $15,000 of Y stock.
A good faith violation occurs if this customer sells the Y stock on Monday.
The purchase is not considered fully paid for because the $5,000 proceeds are not considered sufficient funds until they are settled on Tuesday.