Why won't my broker allow me to sell one stock and buy another on the same day?

By Rob Renaud AAA
A:

There are two likely reasons why a customer would be unable to buy and sell a stock in the same trading day. For simplicity's sake, let's assume that you are trying to sell a stock that you own and buy a different stock that you wish to own, and that the account in which the securities are held is an unregistered, 100% cash, personal brokerage account that is restricted to all-long positions.

The most likely explanation for your situation is that your online brokerage will not let you day trade in your account due to your level of experience as a trader. Here is how the NASD defines day trading:

"For purposes of this rule, the term 'day-trading strategy' means an overall trading strategy characterized by the regular transmission by a customer of intra-day orders to effect both purchase and sale transactions in the same security or securities."

The other possibility is that the account does allow day trading, but it has a number of restrictions set up to prevent you from doing serious damage to your financial situation by over trading without understanding the risks involved. If you are a first-time investor, we can assume that your account has a number of restrictions on it that prevent you from investing in illiquid securities, extremely volatile securities, and so on. Because of the fee structures and complex regulations involved, brokerage accounts are usually set up with restrictions for beginner investors. Customers can ask to have these restrictions removed from their accounts. Depending on the brokerage firm and the customer's financial situation, the restrictions may be removed or loosened at the customer's request or after a given number of trades have been made.

If you continue to find your brokerage account too restrictive, you may want to shop around. Some online brokers are less restrictive on account activities than others. Depending on the brokerage, day trading can be defined as anything from making more than one trade in a day, to buying and selling the same stock in a day. Investigating your brokerage's policy on this matter may lead you to seek another online broker with less trading restrictions.

For further reading, see 10 Things To Consider Before Selecting An Online Broker, Choosing A Compatible Broker and Day Trading: An Introduction.

RELATED FAQS

  1. What's the difference between binary options and day trading?

    Binary options and day trading are both ways to make (or lose) money in the financial markets, but they are different animals. ...
  2. What does it mean when there is "price action"?

    Price action refers to the day-to-day fluctuation in the price of an asset. Traders gauge a stock's price action by monitoring ...
  3. Where do most fund managers get their market information?

    Many fund managers, whether they manage a mutual fund, trust fund, pension or hedge fund, have access to resources that the ...
  4. How much money do I need to start trading?

    The step toward becoming an active trader is a big one, because the world of active trading is quite different from that ...
RELATED TERMS
  1. Forex Spread Betting

    A category of spread betting that involves taking a bet on the ...
  2. Active Trading

    The buying and selling of securities with the intention of holding ...
  3. Volume Analysis

    The examination of the number of shares or contracts of a security ...
  4. Intraday Return

    One of the two components of the total daily return generated ...
  5. Custodial Agreement

    An arrangement whereby one holds an asset or property on behalf ...
  6. Basis Trading

    An arbitrage trading strategy that aims to profit from perceived ...
comments powered by Disqus
Related Articles
  1. Strategies And Secrets Of High Frequency ...
    Trading Strategies

    Strategies And Secrets Of High Frequency ...

  2. Picking Your First Broker
    Investing Basics

    Picking Your First Broker

  3. How To Become A Sophisticated Investor
    Investing Basics

    How To Become A Sophisticated Investor

  4. Get Organized With An Investment Analysis ...
    Investing Basics

    Get Organized With An Investment Analysis ...

  5. Top Broker Excuses For Poor Investments
    Brokers

    Top Broker Excuses For Poor Investments

Trading Center