Frequent Intraday Trading: Understanding the Basics
If you're an avid trader, you might be pursuing--or thinking about pursuing-- a strategy involving frequent, intraday trading. Investors who actively trade securities, including stocks or options, throughout the day might attempt to profit from small price movements, typically related to volatile stocks, and often make these trades using margin. However, some active investors might choose to implement a frequent trading strategy in cash accounts as well.
The possibility of making rapid returns through this type of trading can be tempting, and online brokerage accounts and apps have made frequent trading more accessible and engaging. However, frequent intraday trading comes with risks--particularly if you're trading on margin--including losing some or all of your investment.
When you buy securities in a cash account, you must pay for securities in full before selling them. Buying and selling the same security in a cash account before paying for it is known as "free-riding," a violation of the Federal Reserve's Regulation T that can lead to strict account restrictions. You can also incur what's known as a "good faith violation" if you purchase a security with cash from a transaction that hasn't settled yet and then sell the security before the proceeds used to fund the purchase have settled.
Source Fool.com
