Day Trading Margin Requirements

Margin is the lifeblood of any day trader. As most traders will tell you, finding the capital necessary to effectively day trade can be an expensive venture. At the very least, a trader needs $50,000 in buying power to trade equities or other instruments in the intraday time frame. Margin is essentially a loan issued by brokers to traders, but margin has its risks and brokers don't just give margin out to anyone who wants it. There are rules and regulations surrounding margin loans and we'll highlight those here.

Are you a day trader?

If you're trying to figure out if margin requirements apply to you, first figure out if you're a day trader. A day trader is defined as anyone that buys then sells--or sells short and then buys to cover--a security within the same day and then repeats that action for four of the next five business days.

How Much Capital Do You Need?

Brokers are mandated by law to require day traders seeking margin to have $25,000 in their accounts at all times. If you drop below this level, you have five business days to meet your broker's margin call. If the call is not met by the fifth day, you'll be forced to trade on cash-available basis only for the next 90 days. In other words, don't ignore a margin call.

The $25,000 threshold can be met with cash or a combination of cash and securities.

What Does Margin Do For You?

As a retail trader, your broker is extending four-to-one leverage to you when you deposit $25,000 into an account for day trading purposes. This means you have $100,000 to trade with as long as your margin is met. If you exceed your buying power, your broker will make a margin call for the balance by which you went over your allotted buying amount.

Two Days

You cannot fund a margin account and immediately withdraw the funds for other purposes. You are required by law to leave the funds in the account for at least two days.

No Cross-Guarantees

If you get a margin call from your broker, you cannot say to him that you'll meet the call with funds from another brokerage account. This is called a cross-guarantee and it is forbidden in day trading. You have to meet margin calls with the funds available in the account in which the call is being made.