Something illegal is defined as something against the law or breaking the rules. For breaking such rules, there would be consequences of fines or jail time. This is not the case when we take a look at day trading; day trading is not illegal or unethical. Day trading is the legal practice of buying and selling a financial asset within a single trading day, and is most common in foreign exchange and stock markets. In the USA, there is no specific law on day trading. Day trading is not illegal when it is done within normal trade hours and properly recorded.
Day trading is not illegal when it is done within normal trade hours and properly recorded. The Financial Industry Regulatory Authority (FINRA) however does enforce the “pattern day trader” rule on brokers. A similar practice known as late day trading is illegal and can be prosecuted under the commodities fraud law. Investors need to be aware of their local laws and regulation. In this article, we will dive into the rules of day trading. This will help to put your mind at ease and ensure you know what to stray away from.
Stay In the Know
A well-developed system of rules helps humanity avoid chaos and many problems that may be caused by the lack of regulations. Laws help to dictate what is proper and what is wrong. Under the pattern day trader rule, a day trader has to keep a minimum of $25,000 in their account. If the obligatory equity of $25,000 is not met before any day-trading activity, you are not allowed to day trade, until the minimum equity is met. Under the pattern day trader rule, you can trade up to four times over the upkeep margin excess. If you exceed the buying power limitation, your broker will issue a margin call. If you don’t meet the margin call by the fifth business day, your account will be restricted to only cash basis trading for the next 90 days or until the margin call is met.
The “pattern day trader” rule (PDT) and $25,000 equity balance only apply to the U.S. stock market. Day trading is legal in the United Kingdom and does not fall under the PDT rule. If your broker does not fall under the FINRA rules and is regulated by FCA for example, the rule does not apply. Day trading is legal in Canada. While some Canadian brokers follow the same rules as U.S. brokers, they are usually less strict. Always check the terms and conditions of your broker before you deposit any money so you can stay in the know.
Late Day Trading
Before 1968, late day trading was a normal practice known as “backward pricing”, in which you could buy mutual funds at the previous closing price. In 1968, the Securities and Exchange Commission issued Riles 22c-1 to prevent this type of corruption. There are three different areas of the law that apply to this practice. Pricing of Securities which specifically requires all orders received after the daily net asset value calculation to be priced based on the next day. When this rule is not followed, it is charged as improper pricing of securities.
Market manipulation is a felony to alter the price of a stock or commodity. To be convicted of this charge, a prosecutor has to prove that the manipulation was intentional, either through illegal trade practices or misleading statements Fraud on the market is a charge that a person must have knowingly performed a fraudulent scheme on the market or in connection with a security. Even an attempt to defraud other market investors can hold you liable under this rule. Depending on your involvement in these acts, penalties can vary, but fines are up to $1milliong and up to ten years in prison.
The SEC is the primary governmental body responsible for any investigations into charges of securities and commodity fraud. The securities market is also regulated by FINRA and individual markets like the New York Stock Exchange (NYSE). Anyone who sells stocks or bonds should be a member of FINRA, which represents and regulates all stock and bond brokerage firms and their employees. FINRA also manages background checks and licensing exams for all employees registered to sell securities. An investigation into late day trading may involve questioning, checking financial records, and retrieving computer records to see the time of your activity.
Summary: Is Day Trading Illegal?
So, as you can see thanks to the availability of regulations society exists, not just a mob of people with no sense of direction. Day trading itself is not illegal when certain actions are done to break the rules in place is where you can find yourself in a bind. Keeping yourself in the know helps you walk on the right path. When in doubt ask questions, with the MK VIP training, I can teach you how to day trade like the top 10% and how to do it the right way. I care about every single one of my students deep down; this is my passion.
As of now, MK Financial LLC is already the #1-day trading coaching business in the US in just one year. My goal has always been to mentor as many day traders to achieve their personal financial goals, whether they are novice traders or experienced traders. The MK VIP training has plenty of resources to help you get started on reaching your day trading goals. You will be profitable for at least 80% if not more of your trades. I can teach you the best trading strategy that if you put in the work and practice, you will have consistent winning trades. I am here to not only guide you with tips but any needs in your trading journey.
Maurice Kenny has helped over 600 people become financially free through one-on-one coaching, mentorship, and options trading strategy. Many of these new traders are now full-time traders, and they all started by watching his 1-hr webinar.
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