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Understanding Day Trading

D ay trading can be challenging to master because it means only holding securities for a day. In addition, investors don’t want to be issued a day trade call, which means they’ve violated their margin account. They also don’t want to have their account labeled as a pattern day trader and have restrictions placed on their account. It’s essential to understand what day trading entails to avoid making any adverse actions.

Key Takeaways

  • A pattern day trader is someone who engages in four or more day trades within five business days.
  • Pattern day traders are required to have a margin account with a minimum equity requirement of $25,000.
  • Day trade buying power is how much an account can day trade without producing a day trade call.
  • A day trade call is issued when a trader violates their margin account.

What Is Day Trading?

Image via Flickr by cafecredit

A day trade is an opening trade followed by a closing trade on the same security on the same day. If four or more day trades are made within five consecutive business days, the account owner will be considered a pattern day trader. The account will then be held to different requirements and rules, such as a $25,000 minimum equity requirement. When an investor buys and sells on the same business day in a margin account, their account will be labeled as a pattern day trader, and they’ll have to follow pattern day trader rules.

Day Trade Call

Investors who are issued a day trade call, occasionally referred to as daily trading call, have violated their margin account. An investor has five days to meet the call by adding cash or marginable securities into their account. After depositing the funds to meet the day trade call, the funds are placed on a two-day hold to consider if the day trade call has been met. Days are added to the hold if it takes longer for the funds to move.

Investors can’t use cross-guarantees to meet the day trade call, and some securities are not eligible either. Investors have to meet the call with cash or approved marginable securities.

Becoming a Pattern Day Trader

A pattern day trader participates in four or more day trades within five business days. The number of day trades also has to be more than 6% of their total trading activity in those five business days. Pattern day traders must meet the minimum equity requirement.

Understanding the Minimum Equity Requirement

The Financial Industry Regulatory Authority (FINRA) requires that accounts belonging to pattern day traders must maintain a day trader minimum equity requirement of $25,000. Having cash and marginable securities held within the account will allow the investor to meet this requirement. If investors fall below the $25,000 margin, a day trade minimum equity call is issued.

If an account falls below the $25,000, the investor won’t be allowed to day trade until they meet the minimum equity requirement. Investors get five business days to meet the criteria. The account is limited until it reaches two times the maintenance margin excess of daily total trading power. If the call is still not satisfied after the five days, the account will be further restricted. In this case, investors will be allowed to trade with cash only for 90 business days or until they finally meet the day trade call minimum equity requirement.

Some brokerage firms have their own rules beyond the minimum equity requirements, so pay attention to the firm’s rules. A firm also may label an account as a pattern day trader if they believe that the account will engage in pattern day trading.

An account can have the pattern day trader label withdrawn if there aren’t any day trades with the account for 60 days.

Day Trade Buying Power

Day trade buying power is the amount an investor can trade from their account in a single day without generating a day trade call. Day trade buying power is fixed and decided by the balances from the account on the previous day. Investors can’t increase their account balance by selling already-held securities. In addition, the funds required for day trading must be held in the margin account one business day before figuring out the day trade buying power. If the total profit of all day trades, in one day, surpasses the starting day trade buying power, a day trade call is issued.

How Do You Day Trade?

Follow these steps to prepare for day trading:

  1. Do your homework. Research the stocks you would like to trade and keep an eye on the market.
  2. Keep extra funds handy. You may need to trade with these additional funds or be willing to lose them. Make sure you know how much money you’re ready to risk each trade.
  3. Make sure you have the time to invest yourself fully into the trades. You’ll most likely have to give up your whole day. That’s the reason it’s called day trading. You’ll have to be ready to move fast on good opportunities throughout the day.
  4. Start small. Keep an eye on one or two stocks you’re interested in and watch them for opportunities.
  5. Learn market times. The mornings can be quite volatile with all the trades beginning at once. The end of the day can be quite chaotic, especially as people try to get last-minute trades done. The middle of the day tends to be the calmest, so for beginners, this may be the best time to trade.
  6. Make sure you keep calm. When you’re a day trader, a lot happens in a small amount of time. Keeping emotions at bay while trying to be logical is the best course of action. Have a plan of action and stick to it.
  7. Maintain good relations with your brokerage firm. Know and understand your brokerage firm’s equity level requirements. All firms will have the initial requirements, but some will also have conditions that are unique to their firm. Some require investors to hold more than the minimum equity requirements set in place by FINRA.

Real-World Examples of Daily Trading Calls

To better understand the process of day trading and possible outcomes, look at a few of these examples.

Example One: Day Trade Call

You buy and hold a security in MNO stock overnight, using most of your intraday buying power. You sell your shares of MNO the next business day, which gains you more margin buying power. You use the profit from the sale of MNO to buy shares of QRS stock.

Your firm allows the trade based on the assumption that you will hold your shares of the QRS stock overnight. However, the QRS stock drops during the day, and you sell your shares. Since you used margin buying power and not day trading power, your brokerage firm will issue a day trade call.

Example two: Day Trade Margin Call on Your Account

You begin the day with $1,000 in margin equity, and your day trade buying power is also $1,000.

  • You make your first trade at 11 a.m.
    • You buy 50 ABC at $55 for a total cost of $2,750.
  • You make your second trade at noon.
    • You sell all your ABC (50) stock at $56 and increase your buying power to $3,050.
  • Your third trade you make at 12:30 p.m.
    • You buy 100 shares of CCC at $29 for a total cost of $2,900.
  • Your last trade of the day takes place at 2 p.m. You sell your shares of CCC at the same price you bought them at $29.
  • While neither buys exceeded your day trade buying power, you still have to add all the day-trade requirements. When you add $2,750 to $2,900, you get $5,650. Now you have to subtract your day trade buying power from your total. $5,650 – $1,500 equals $4,150. The $4,150 surpasses your starting day trade buying power and will have your brokerage firm issuing a day trade margin call to your account.

D ay trading calls can be an exciting way to invest in the stock market, but day traders need to be well-versed in the stock market and the nuances specific to day trading. Investors who are just starting may want to learn more about day trading until they’ve gained more experience. If you decide to day trade, make a plan and stick to it.

Author: Kyle Dennis

Straight outta college Kyle Dennis taught himself to trade, and then made over $7 million in trading profits by the time he was 28 years old. Kyle reveals how to find, track, and profit from lucrative trades for exceptional profits. Thousands of traders follow him every day to learn how to target these high probability trades.

What a crazy market it’s been the past few sessions.

This week we witnessed a collapse of the world oil market, and it dragged stocks lower… and today, oil prices caught a bounce after its record plunge.

There’s still so much uncertainty coming from so many places… from earnings, the coronavirus, and the global economy, you would probably think traders would be rushing into safe-haven assets to protect themselves.

Sure, some are… but others are not, and they’re attacking the market and placing some pretty wild bets from what I can tell.

In this environment, I’ve noticed unusual buying in options on specific stocks… and I want to provide some insight as to why I’m following the flow of money.

Yesterday, I noticed someone came in and purchased Beyond Meat (BYND) calls — the trade was so unusual, and it’s a signal to me someone is looking for a massive run in the stock.

So how did I spot this trade and what am I going to do with this information?

 

Is BYND Set To Run Higher?

 

If you don’t already know, Beyond Meat (BYND) is a company that makes plant-based food products, also known as fake meat. It was one of the hottest IPOs last year after it made a massive run… and the stock may have the potential to make another run.

Why do I think that?

Well, while stocks were selling off yesterday, I actually noticed someone bought a large number of call options in BYND. Do I know who bought or why they bought those options? Absolutely not.

All I know is that someone placed a large bet in BYND.

You see, on an average day, approximately 30.7K call options on the symbol trade. However, yesterday, I saw over 97,000 calls trade. That’s 3.3 times the usual options volume.

So what specifically caught my attention?

Well, around 10 AM, I noticed a specific options trade go off — someone bought 435 BYND Jul 20 150 calls for $2.16 per contract.

It cost them a cool $112K to place that trade. I don’t know about you, but that is a pretty sizable trade to me.

Now at the time of the trade, BYND was trading at $91.41, and the stock closed at $84.96.

That means for this trader to make money, the stock would need to rise by more than 66% before the expiration date, at the time.

Now, whenever I see these longshot bets, my first instinct is to think the trader might know something… and I do my due diligence.

The thing is, BYND is expected to report earnings on June 4, and those options don’t expire until July.

Not only that but, when I looked at the daily chart… BYND is right near a key level (the blue horizontal line) in the chart below.

 

 

This is a key area that many traders are watching… and it just so happens to be at $90, a key psychological level. I think if BYND breaks above this, momentum buyers could pile in.

Now, the 2020 high for BYND is about $135 per share. That means the trader believes BYND will continue its rally from March lows, but potentially reclaim highs and then some.

Author: Kyle Dennis

Straight outta college Kyle Dennis taught himself to trade, and then made over $7 million in trading profits by the time he was 28 years old. Kyle reveals how to find, track, and profit from lucrative trades for exceptional profits. Thousands of traders follow him every day to learn how to target these high probability trades.

Penny stocks are high risk, and because the health care industry is one of the most volatile areas even for large companies, biotech penny stocks carry higher risk than most. Medical penny stocks are attractive because investors who do their research can experience significant, rapid growth when they invest in the right small biotech firm. On the flip side, these small companies can quickly lose their market shares to more established competitors, especially if they experience slow sales.

What Are the Best Biotech Penny Stocks?

To mitigate risk, stick to firms that have an established track record in marketing and product development. When you put your money in medical penny stocks, keep a close watch for factors that may impact value, such as a surge of new competition or high-profile product failure. Review the company’s financials regularly to get an early glimpse of potential red flags.

Favor companies that have various products in different stages of development, which increases the chance that one of their Phase II programs will successfully come to market. Partnerships with larger firms can also boost the value of pharmaceutical penny stocks. Innovative treatments and drugs are also a good indicator that a small company will succeed long-term.

Investors who want to profit from biotech penny stocks have to be ready to play the long game. Brand-new drugs can take a full decade to go through clinical testing and FDA approval so they can land on the drugstore shelves. In addition, between 85% and 95% of new medications never make it to market because they fail either FDA approval or clinical testing. If you can wait out the volatility, however, you may be able to take advantage of significant unexpected gains.

These hot biotech penny stocks are a good place to start for investors who want to explore the potential rewards of this industry.

  1. Adamis Pharmaceuticals
  2. Agenus
  3. China Pharma Holdings
  4. Curis
  5. Galena Biopharma
  6. Ignyta Inc.
  7. Immune Pharmaceuticals
  8. Neuralstem, Inc.
  9. Novavax

1. Adamis Pharmaceuticals

Based in San Diego, Adamis Pharmaceuticals is currently seeking FDA endorsement for an epinephrine syringe formulated in a prefilled version to treat hypersensitivity reactions. Because the company’s main competitor, Mylan, is currently under investigation for increasing the price of its similar product by more than 450% to $600 since 2004, this may be a good time for Adamis to claim a share of the market. In light of this news, the penny stock’s price jumped by 13%, resulting in a trade volume of 6.63 million shares.

In addition, Adamis received a recent U.S. patent for Taper DPI, a medical device designed to allow patients to inhale dry powder treatments. The product is also patented in Europe.

2. Agenus

This small immuno-oncology biotech firm specializes in innovative drugs, such as an immunization adjuvant in development in collaboration with pharma giant GlaxoSmithKline. However, most of Agenus’s medications are in the preclinical stage, though the company has the benefit of major partners such as Incyte and Merck. Current products in the pipeline include antibodies under investigation to treat intestinal illness and shingles. The former drug, Mosquirix, would be the first medication of its kind to treat intestinal sickness and has been endorsed by both the World Health Organization and the European Medicines Agency.

3. China Pharma Holdings

This Chinese biotech firm specializes in products and treatments for infectious diseases, neurological diseases, and cardiovascular issues. Most of its assets are currently receivables, so keep in mind that they may not necessarily collect the full value of those receivables when deciding whether to invest in China Pharma Holdings. However, many investors were pleased by the stock’s sharp breakout early in 2018 and hope that as the firm releases more drugs, the stock price will skyrocket again. If you are able to wait out the volatility, you may be able to take advantage of significant returns.
Be aware of geopolitical factors that could affect the stock price of China Pharma. Familiarize yourself with the close control of the Chinese government over firms based in the country.
Although this firm currently has low cash reserves, it’s expanding into several new markets, including health products. For example, at the end of 2018 they released Ararato, an alternative aging treatment made from noni enzyme, a popular ingredient in traditional Chinese medicine.

4. Curis

This biotech firm specializes in new cancer treatment medications, including research and development in collaboration with other major pharma companies. Its first drug with Food and Drug Administration approval, Erivedge, is prescribed to treat basal cell carcinoma in Europe, the United States, and several other nations. Fimepinostat, another drug, has been fast-tracked for clinical trials by the FDA.

With this investment, be aware of changes in stock price based on the results of drug trials and the FDA approval process. Although profits have been minimal because many of this firm’s products are still in the R&D phase, several new products are expected to hit the market soon, making this one of the best pharmaceutical penny stocks to set your sights on this year. Curis currently has two drugs in the pre-clinical phase and two in the clinical phase, in addition to those mentioned above.
Although Curis has displayed high volatility that may scare off risk-adverse investors, you can also take advantage of support levels to create a strong position. If you’re not sure, continue tracking the progress of the drugs currently in development from this firm.

5. Galena Biopharma

With a business sector cap of $240 million, Galena has one of the strongest showings among biotech penny stocks. Its innovative tumor immunization drug, NeuVax, is currently in phase 3 of clinical trials and is expected to gain a market share of at least $5 billion once it hits shelves. This company has proved its mettle as one of the biggest Russell 2000 gainers with an increase of 6.64% and nearly 2 million shares exchanged. The relative strength index (RSI) is 39.75, and the stock has an instability rating of 7.33% on a monthly basis.

6. Ignyta Inc.

With a $420 million market cap, Ignyta specializes in integrated diagnostic tests and treatments for oncology care. The firm gets attention for its streamlined basket model of clinical trials, which utilizes aggressive marketing and development, a large new product pipeline, and multiple points of data. Positive results on its recent products show significant promise for reducing the size of cancerous tumors. However, investors should be aware of the risk inherent in this company’s lack of liquidity.

7. Immune Pharmaceuticals

With a multifaceted program to develop immuno-oncology drugs to fight malignant tumors, Immune Pharmaceuticals boasts some of the most robust talent in the industry, including transfers from the Pfizer Oncology Research Unit. With aggressive pipeline growth, the company has gained note for Ceplene, which is used in Europe to treat regression in adults who have a poor prognosis with acute myeloid leukemia. This drug is currently in Phase 3 testing.

8. Neuralstem, Inc.

This biopharm organization specializes in focal sensory system treatments and has demonstrated significant clinical advancement with its main compound, NSI-189, which is currently in a second phase of testing. Neuralstem gained attention in 2016 when it earned $9.1 million from a private securities arrangement. The same year, the company restructed and refocused its methodology in order to streamline costs.

Early information on another compound by this firm, NSI-566, was presented at the annual meeting of the American Neurological Association in fall 2015. Eva Feldman, MD, PhD, Director of the A. Alfred Taubman Medical Research Institute and Director of Research of the ALS Clinic at the University of Michigan Health, is leading the clinical trials for this promising drug. A third compound, MDD, is currently in the second phase of clinical trials with about 225 test subjects.

9. Novavax

This hot pharmaceutical penny stock pick specializes in vaccines for individuals throughout the lifespan, including everyone from infants to the oldest seniors. Novavax is a smart choice for those concerned about investing in brand-new companies, since it was founded way back in 1987. Since then, the firm has introduced vaccines for prevention of various illnesses, including the Zika virus, the Ebola virus, and the seasonal flu.
Despite setbacks in the Novavax stock price in late 2017 and early 2018, this firm’s reputation is bolstered by the vaccines it currently has in development. For example, the company is currently working on a vaccine for respiratory syncytial virus (RSV), which is an often fatal illness affecting pediatric patients all over the world. Another product, the NanoFlu virus, is currently in the testing phase and shows promise, demonstrating that it is significantly more effective than the current flu vaccine and is well-tolerated by older adults.
As with all biotech penny stocks, keep an eye on clinical and FDA approval to get the full picture for this investment.

Author: Kyle Dennis

Straight outta college Kyle Dennis taught himself to trade, and then made over $7 million in trading profits by the time he was 28 years old. Kyle reveals how to find, track, and profit from lucrative trades for exceptional profits. Thousands of traders follow him every day to learn how to target these high probability trades.