Trading Stocks: How Trading Stock Shares Can Make or Break Your (Trading) Day Some people have a sixth sense knowledge of how to pick a stock. They can close their eyes and their magical knowledge will lead them to the stock that is about to blow up sky high. Maybe they are just lucky. Maybe they pay a little more attention to the financial news than others do. No matter why they are successful, they are and in this particular time, that is a rare thing to find indeed. Trading stocks sounds like a fairly easy proposition if you think about it. We all understand the concept of “trading” and we all have an equally fair understanding of what a stock is. But trading stocks is not as simple as it seems and can lead you to quick financial ruin if you do not have some semblance of an idea of what you are doing. You do not walk up to a broker and trade so many stocks for the equal number of a different one, it just does not work that way. When you consider that the financial market system has a capacity for handling literally billions of trades each and every business day, it can really boggle the mind. If you are new to the stock trading market, it is better to seek the advice of a broker and to work with them until you are more confident in your abilities as a trader. Make predictions on paper alone and track the stocks movements to see how much you really do need to learn. Once you are comfortable with this “mock” trading you can spread your wings and start trading stocks on your own. A “trade” is the act of buying or selling stocks- period. Although there are many complicated terms and jargon involved with the stock market, this is one that is straightforward and should be simple to comprehend. It does not matter if you wish to trade ten shares or ten million shares, the term remains “trade” in the end. Trades happen in one of two basic ways, either electronically (online) or on the exchange floor. Many markets are moving their trade activity to computer networks rather than on the exchange floor for a variety of reasons. In fact, experts are debating how much longer there will be an actual “trade floor” that involves real people shouting back and forth. While it is tradition and time honored, it may not be as cost effective or fast enough to remain competitive in a computer based world any longer. Although it will not eliminate the broker from the activity- (the novice and casual traders will not have access to all market aspects) it will potentially speed up the process and lower some of the costs involved.

Day Trading Power: Make Sure You Understand All of the Rules

To understand the concept of day trading power, you must know a few other key facts first. The definition of what a day trader is and what constitutes a day trade are probably the most important to understand. Day traders are, simply put, traders who do daily trades that are online, with short term investments. Day trading power is the limit of the amount of these trades that can be done by an individual trader, which also includes a minimum amount of trades that can be transacted per day. Figuring the amount can be complicated and for this reason, it is advisable to get your feet wet in the field of stock trading with the guidance of a certified stock broker who can worry about the rules governing trades, whether they qualify as day trades and therefore culpable under the day trading power rules or not.

Once a trading account has been designated as a day trader account, you must calculate the day trading power of that account. That formula is fairly complex, and again is not something that the average novice trader will be well informed about. Unless you are a financial whiz kid or a math expert, this is probably one realm that you want to leave to the trained and paid professionals.

If you are at all curious about what this formula for calculating day trading power and day trading buying power is it goes like this:
4X Maintenance Excess = DTBP.
For those of you currently scratching your head, you must also figure what maintenance excess as well. That calculation is:
Total Positions + Total Cash = Total Equity
Total Equity-Non-Margin Positions= Margin Equity
Margin Equity-Maintenance Requirement= Maintenance Excess

These figures are based on the previous day’s closing prices.

Along with figuring DTBP and knowing what makes a trade account a day trader account, you must understand the minimum equity requirements for such an account. In most cases that amount is fairly substantial at $25,000,  and can be as much as $5000 more than that. If your day trading account goes below that minimum equity requirement, then you will be issued a “call” to bring it up to minimum, if not, your trades left in the account can be liquidated. Your day trading power can only remain operational if you maintain your minimum equity requirement and your trading activity remains within the set limits.