I would like to day trade with Alpaca using cash and I’ve read conflicting or confusing information about this here, in Alpaca docs and other web sources. I am fortunate enough to have $25k (or 25%) available to satisfy PDT rules but I’ve read that you still cannot day trade with a margin account anyway. I’ve also read that you can day trade, but I don’t want to pay margins. Is it possible to trade with an alpaca account using only deposited or settled cash while not paying margins? If not, that’s a shame because Alpaca would be scaring away investors like myself. Thanks for the help.
@trevdawg122 First off welcome to the Forums here! I’ll try to answer/address your questions.
You stated “I’ve read that you still cannot day trade with a margin account anyway”. That is incorrect. Margin accounts, with greater than $25,000 equity, can day trade without restrictions (except of course the accounts Day Trade Buying Power).
Also “but I don’t want to pay margins”. Margin is essentially a broker lending funds if one ever buys more stock than they have available funds. If one never buys more than they have funds they never use margin and never pay margin fees. There is a setting in Alpaca accounts to restrict margin to 1x which effectively limits the use of margin, but most often users simply monitor their account and ensure they never dip into margin.
One other thing to note about margin is that fees are only assessed on borrowed funds held overnight. A very common day trading practice is to trade up to 4x the equity in the account (using margin) during the day, but then simply ensure there are no borrowed funds at the end of the day (perhaps by simply closing all positions). No margin fees are charged in this case.
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@Dan_Whitnable_Alpaca, thanks for having me and thanks for the quick response. I’m relieved to hear that I don’t need to find a new home!
EDIT: It’s worth confirming that using a broker having cash accounts would allow day trading with no restrictions including no PDT $25k limit. And Alpaca doesn’t offer cash accounts. Is that correct?
@trevdawg122 Correct on both. 1) Alpaca doesn’t currently offer cash accounts and 2) day trading is not restricted in cash accounts.
Note that day trading in cash accounts, while not restricted by day trading rules, is effectively restricted by the fact one can only trade ‘settled cash’. Proceeds from sales take T+2 days to settle. Here is a scenario.
account_equity = $4000
settled_funds = $4000buy then sell $2000 of AAPL (ie a day trade)
settled_funds = $2000
buy then sell $2000 of AAPL (ie a day trade)
settled_funds = $0
In the above example one could only make 2 day trades and would then need to wait 2 days for the funds to settle (no trading the following day). In this example one can only make 2 day trades every 2 days in a cash account.
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Thanks again. Good points.
Isn’t that an exploit, or is it something completely fine by the broker to provide leverage for free as long as its used and returned within the same day?
@abdul10000 It’s completely fine to use leverage during the day (and not pay any margin). Behind the scenes, all the buying and selling during the day is simply ‘on paper’. It isn’t until the end of the day that the broker ‘nets out’ all the trades and transfers funds to the Depository Trust and Clearing Corporation (DTCC) or their clearing broker, so during the day, any funds you ‘borrow’ don’t really cost the broker anything and they are happy with you trading (which they make money from).
Ok, that makes sense, but how does a commission free broker like Alpaca make money from stocks? Is it order through order flow schemes?
@abdul10000 Alpaca generates revenue in multiple ways including charging trading commissions on some orders, margin lending, interest on cash deposits, and receiving Payment For Order Flow (PFOF) by routing orders to market makers. There is more information on PFOF here.
Thanks, can I have your kind attention on this somewhat related topic:
@abdul10000 I posted in the original topic but copying the response here.
No date for when Alpaca will offer cash accounts. Within the next few months, however, Alpaca will begin offering Tax Deferred (eg IRA) accounts which are ‘cash accounts’ behind the scenes so I’d imagine they will be coming after that. All current Alpaca accounts being margin accounts is stated in the account Terms & Conditions and also here in the docs among other places. I do agree though that it isn’t ‘front and center’ and I’ve brought this to the attention of the UI team. Much of this will be changing soon with the new taxed deferred account offering where one would need to explicitly select the account type.
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Hey Dan, any update on the timing of cash accounts now that tax deferred accounts are out?
Thanks!
Since the IRA Accounts are out now, is there any update on the cash accounts?
Since the IRA Accounts are out now, is there any update on the cash accounts?