DIKSIA.COM - Day trading is a popular strategy among investors who want to make quick profits from short-term price movements in the stock market. However, day trading is not for everyone, as it involves high risks, fast decisions, and strict rules. If you are interested in day trading, you need to choose a suitable broker and account type that match your goals and preferences.
One of the options you can consider is Webull, a commission-free trading platform that offers various features and tools for active traders. Webull has two account types: cash account and margin account. In this article, we will focus on the Webull cash account and how it works for day trading.
What is a Webull cash account?
A Webull cash account is an account that allows you to trade with the money you deposit. You cannot borrow money from Webull or short sell stocks with a cash account. A cash account has some advantages and disadvantages for day trading, which we will discuss in the next section.
Pros and cons of day trading with a Webull cash account
Day trading with a Webull cash account has some pros and cons that you should be aware of before you start.
- No pattern day trader (PDT) rule: The PDT rule is a regulation that limits the number of day trades you can make in a margin account if your account value is below $25,000. A day trade is defined as buying and selling the same stock or option on the same day. If you make more than three day trades in a five-day period, you will be flagged as a PDT and your account will be restricted for 90 days. However, the PDT rule does not apply to cash accounts, so you can make unlimited day trades with your settled funds.
- No interest or fees: Since you are not borrowing money from Webull, you do not have to pay any interest or fees for using a cash account. This can save you some money and reduce your trading costs.
- No margin calls: A margin call is a situation where your broker demands you to deposit more money or sell some of your securities to maintain a minimum level of equity in your margin account. If you fail to meet the margin call, your broker can liquidate your positions without your consent. A margin call can be triggered by a decline in the value of your securities, an increase in the margin requirements, or a withdrawal of funds. With a cash account, you do not have to worry about margin calls, as you are only trading with your own money.
- No leverage: Leverage is the ability to use borrowed money to increase your buying power and potential returns. With a margin account, you can access up to 4x day trade buying power and up to 2x overnight buying power, depending on your account value and the securities you trade. This means that you can trade more than your available cash and amplify your profits. However, leverage also magnifies your losses and risks, so you should use it with caution and discipline. With a cash account, you do not have access to leverage, so you can only trade with your available cash.
- Cash settlement rules: When you trade with a cash account, you have to wait for the funds from your trades to settle before you can use them again. The settlement period is two business days for stocks and one business day for options. For example, if you buy and sell a stock on Monday, the proceeds from the sale will not be available until Wednesday. If you use the unsettled funds to buy another stock and sell it on Tuesday, you will incur a good faith violation (GFV). A GFV is a violation of the cash settlement rules that occurs when you sell a security that was bought with unsettled funds. If you incur more than three GFVs in a 12-month period, your account will be restricted to trading only with settled funds for 90 days.
- Limited options strategies: Options are contracts that give you the right to buy or sell an underlying asset at a specific price and date. Options can be used for various purposes, such as hedging, speculation, or income generation. However, with a cash account, you can only execute four options strategies: long puts, long calls, covered calls, and cash-secured puts. These are the strategies that do not involve borrowing money or short selling. If you want to use more advanced options strategies, such as spreads, straddles, or strangles, you need a margin account.
Tips and tricks for day trading with a Webull cash account
If you decide to day trade with a Webull cash account, here are some tips and tricks that can help you succeed:
- Plan your trades: Before you enter a trade, you should have a clear plan of your entry, exit, and stop-loss points. You should also know how much you are willing to risk and what your profit target is. Having a plan can help you avoid emotional and impulsive decisions that can ruin your trades.
- Manage your risk: Day trading is risky, and you can lose money quickly if you are not careful. You should always use proper risk management techniques, such as position sizing, diversification, and stop-loss orders. You should also never risk more than you can afford to lose and be prepared to accept losses as part of the game.
- Use Webull's tools and features: Webull offers various tools and features that can enhance your day trading experience, such as:
- Real-time market data: Webull provides real-time quotes, charts, news, and analysis for US stocks, ETFs, and options. You can also access global market data for cryptocurrencies, forex, commodities, and indices. Having access to real-time market data can help you stay on top of the market trends and opportunities.
- Advanced order types: Webull supports advanced order types, such as limit, market, stop, stop-limit, trailing stop, and bracket orders. These order types can help you execute your trades at your desired price and protect your profits and losses.
- Technical indicators and drawing tools: Webull has a powerful charting platform that allows you to use over 50 technical indicators and drawing tools to analyze the price movements and patterns of your securities. You can also customize your charts with different time frames, styles, and themes.
- Paper trading: Webull has a paper trading feature that allows you to practice your day trading skills with virtual money. You can use the same tools and features as the real trading platform, but without risking any real money. Paper trading can help you test your strategies, improve your confidence, and learn from your mistakes.
Day trading with a Webull cash account can be a viable option for investors who want to avoid the PDT rule, interest, fees, and margin calls. However, a cash account also has some limitations, such as no leverage, cash settlement rules, and limited options strategies.