|
|
|
|
|
|
|
come to understand that you voluntarily want to hold this position because you believe it will generate gains for you. There is a world of difference between holding an open position because you want to and holding an open position because the market forces you to postpone a loss that you do not want to recognize and pray will disappear tomorrow. |
|
|
|
|
|
|
|
|
DAET requires the availability of an adequate amount of capital. Your capital acts as your platform to extend your financial reach. Your capital is the tool that enhances your leverage. |
|
|
|
|
|
|
|
|
Before the market was booming to new, record-setting highs every other day and stock prices were uniformly lower, you could have had success trading with $50,000 on margin. Today, probably $150,000 is the most advantageous amount of capital for trading, $100,000 is adequate, and $50,000 is a limiting minimum. These sums are based on the availability of margin under Regulation T of the Federal Reserve Board. |
|
|
|
|
|
|
|
|
Remember that we are dealing with intraday margin. Intraday trading means price movements that occur from 9:30 a.m. to 4:00 p.m. New York time of the same day. Day traders usually trade the intraday volatility of securities and go home overnight with no exposed positions. And so no margin is usually needed overnight because the day trader rarely owns securities overnight. |
|
|
|
|
|
|
|
|
Because Regulation T requires that 50 percent margin be posted as collateral toward the purchase price of most securities, your $100,000 of capital will allow you to buy $200,000 of securities at any given time. The current price or sell-short price of a high-cap Nasdaq stock may be over $135 a share, which translates into a purchase price of $135,000 on a basic 1000-share DAET order. Hence, your capital of $100,000 (when doubled by leverage to $200,000) gives you the financial heft to purchase 1000 shares of such a large-cap stock. As you can see, $50,000 of capital will stretch your available margin to $100,000, which will not be enough capital to afford the purchase. |
|
|
|
|
|