After lots of successful paper trading I am beginning to receive “Insufficinet day trading buying power”. In this forum I see that " daytrading_buying_power is determined by subtracting the last_maintenance_marginfromlast_equity and multiplied by 4"
By the above I should have $200,000 day trade buying power. I have reset my account (after hours) and still see the zero buying power.
Anybody have any ideas?
@jim_saunders There is a short writeup about Day Trading Buying Power (DTBP) in the docs here, but I’ll highlight a few things to be aware of.
First, one only receives day trade buying power if the account is designated as a “Pattern Day Trader” (PDT). An account is designated PDT if 4 or more day trades are executed in a rolling 5 day window. Technically one could also simply request an account to be designated PDT but it’s simple to make 4 day trades. Perhaps buy and sell $1 of AAPL four times in one day. That will do it. Once an account is designated PDT it is provided the extra day trade buying power on the following day. Why the next day? DTBP is based upon the previous end of day equity. So, after a paper account is reset, one must 1) execute 4 day trades and 2) wait until the following day to see any DTBP.
Second, DTBP assume all the equities one opens (either buy long or sell short) are ‘typical’ equities which can be fully margined. This means for every $1 of holdings, one receives $4 of buying power. One basically uses their holdings as collateral to secure a loan for the extra $3. However some equities cannot be margined, They cannot be used as collateral to borrow more funds. This is true of leveraged ETFs and generally any security which has a maintenance_margin_requirement of 100%. Additionally, even if an asset has a typical 30% maintenance_margin_requirement if the last close price of the security is under $2.50 it is also considered ‘non-marginable’. The specific rules vary whether one is opening a long or short position and are in the documentation here.
So, while the typical DTBP is calculated as
dtbp = 4 x excess_equity
dtbp = 4 x (last_equity - last_maintenance_margin)
That number (which is the number returned in the API) needs to be divided by 4 if one is opening a position in an equity with 100% maintenance_margin_requirement (eg leveraged ETFs). So, before submitting an order 1) check the account day_trading_buying_power and 2) check the asset maintenance_margin_requirement and 3) the asset’s last close price. Then 4) determine if it is marginable or not (based upon maintenance_margin_requirement and close price). If it’s not marginable, divide account day_trading_buying_power by 4. That is the effective buying power for that security. You cannot buy any more than that.
Hope that all makes sense.