If you already thought day trading was the wild west of investing, get ready: The guardrails are about to come off for real.
Yesterday, the Financial Industry Regulatory Authority (FINRA) removed the $25,000 minimum equity rule for pattern day trading. Now, traders no longer need at least $25,000 in their account in order to make four or more trades within a five-day period.
If the SEC upholds the decision, the only thing holding traders accountable will be the margin requirements for positions they take, according to CNBC.
Is this..a good idea?
The rule was put in place after the dot-com crash in 2001 to prevent smaller traders from losing everything in volatile stocks. But these days, retail investors have pretty much taken over the market. Wall Street used to hate these new meme-loving investors, but lately, the pros have come to embrace retail traders as one of their own.
After all, there’s a lot of money to be made from retail investors. Retail-facing brokerages like Robinhood and Charles Schwab had stellar earnings last quarter thanks to a revival of meme trading and the S&P 500’s record ascent, with retail traders buoying the market from its April lows. Cutting the $25,000 account minimum means more people can trade more often, and that means more money for brokers.
But it’s all fun and games until regular people start losing money. “I have this concern that there's a whole bunch of 20-somethings who will have a very bad experience early on, and then shy away from the stock market as a whole for a decade,” Michael Goldstein, professor of finance at Babson College and former chair of the economic advisory committee for FINRA, warned back in August.
New day traders might be about to hit the market like a wrecking ball—and they may not be ready when the market hits back.—LB
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