Trading Rules of US Stock

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First let me tell you a little bit about the US stock market.There are five US markets, namely, the New York Stock Exchange NYSE, NASDAQ NASDAQ, US Stock Market, Competition and OTC. Among them, the New York Stock Exchange and NASDAQ are the two American exchanges we hear most often.
Various indexes of the US stock market emerge one after another, and  buyers need to know the three most important indexes of the US stock market, namely, the Dow Jones Industrial Index, the Standard & Poor’s 500 Index and the NASDAQ Composite Index. These three indexes are the stock price indexes that can best reflect the US stock market in different historical periods and different algorithms. Through these three indexes, buyers can basically judge the trend of US stocks, so I suggest that you must pay attention to them.

  1. Us stock trading hours (Monday to Friday).

a. normal trading hours:

  • Daylight saving time (daylight saving time is used from early April to early November every year)
  • Winter time (from early November to early April each year)

b.The time and characteristics of pre-and post-trading (this is daylight saving time, winter time is delayed by one hour):

  • Pre-market trading time: 4:00-9:30 et.
  • Hours of after-hours trading: 16:00-20:00 et.

c.Features: pre-and post-market trading also depends on the brokerage (both Scott and Yitou Securities (IB) support pre-and post-trading):

  • Poor liquidity and high bid-ask spread (Bid Ask Spread).
  • Big companies only have deals before and after trading.
  • Special events can lead to an increase in trading volume, such as the release of financial reports, non-farm data, and so on.

2. Price limit: us stocks adopt a circuit breaker mechanism with no rise or fall limit at the same time. The SEC has set up a “limit on price volatility” mechanism for individual stocks to suspend trading if the trading price of a stock rises or falls by more than 10 per cent within five minutes; if the trading price of the stock does not return to the prescribed “price fluctuation range” within 15 seconds, trading will be suspended for five minutes. There is a three-stage circuit breaker mechanism for the stock index. for example, when the S & P 500 index falls 5%, it will be suspended for 15 minutes; when the stock index falls 10%, it will be suspended for 1 hour; when the stock index plummets 20%, the stock market will be closed for one day.

3. Transaction code: generally speaking, it is the abbreviation of a listed company.

4. T+3 and the T+0: (If this system is not clear, it will bring a lot of obstacles to everyone.).

T+3: US stocks implement the T+3 delivery system, that is, clearing and delivery can not be completed until the third working day after the transaction takes place. T refers to the buying date, and if the buying stock is held for more than 3 trading days, the selling funds can be used at that time (buy other stocks and sell on the same day). If the sale is less than 3 trading days from the purchase date, you have to wait for 3 trading days before the funds can be used, and the funds that can be used here can be transferred out at the same time.

T+0: Day Trade means that stocks bought on the same day are sold on the same day. However, certain conditions need to be met in order to T+0 in US stocks, because frequent trading may cause inexperienced small investors to lose capital quickly. In order to avoid this risk, the (SEC) of the US Securities Regulatory Commission has formulated PDT (Pattern Day Trader) rules and imposed restrictions on intraday trading for small investors. The US Securities Regulatory Commission requires that if there are four or more Day Trade, in five trading days and these transactions account for 6 per cent or more of the total number of transactions in the same period, they are considered Pattern Day Trader. The account assets of a Pattern Day Trader (including cash, stocks or other compliance assets) must reach $25000. If the investor’s trading behavior meets the definition of Day Trade and his account assets are less than $250000, stock trading will be frozen for 90 days or until the investor’s account assets are replenished to $25000.

T+0 can change several different trading privileges under several accounts and funds of US stocks. No matter whether your account exceeds $25000 or not, you need to read the following words carefully and will not cause huge losses because you do not understand the trading rules:

  • Cash customer: no matter how much money you have in your account, you can only T+0 if the funds have been delivered, otherwise you must wait for the funds to be delivered before you can sell the shares, otherwise you will be banned from trading for 90 days. For example, if your funds have been delivered, the stocks you bought on the same day can be sold on the same day, and then you will continue to buy with this money, and you will have to wait for three trading days before you can sell. No matter how the stock falls within three trading days, you can’t sell it. Don’t forget that the US stock has no limit on its rise or fall. It is normal for the US stock to fall to 80% in three days. If you sell illegally, you will be banned from trading for 90 days.
  • Margin customer: the total value of the account is more than $2000, but less than $25000. The trading system is T+1, but within 5 trading days, there are three opportunities to hedge, that is, T+0. If it is done 4 times, the account will be prohibited from trading for 3 working days to wait for the delivery of funds. After the funds are delivered, they will be automatically converted to cash accounts and re-apply for margin trading after the status of the cash account has been maintained for 90 days.
  • Day Trade customer: which includes any margin customer that day trades (buys then sells or sells short then buys the same security on the same day) four or more times in five business days, provided the number of day trades are more than six percent of the customer’s total trading activity for that same five-day period. Under the rules, a pattern day trader must maintain minimum equity of $25,000 on any day that the customer day trades. The required minimum equity must be in the account prior to any day-trading activities. If the account falls below the $25,000 requirement, the pattern day trader will not be permitted to day trade until the account is restored to the $25,000 minimum equity level.

5. What other financial products can you invest in besides stocks? Most brokerages support the trading of stocks, futures, options, bonds, foreign exchange, spot gold and silver, as well as index funds ETF, CFD and other financial products.

6. Financing and securities financing (leverage and short selling).

a. Financing is what we usually call leveraged trading. To put it simply, we use the funds or stocks of our accounts as a pledge to borrow more funds from brokers to buy stocks, and repay the principal and interest within the agreed time limit.

Financing is the use of leverage to enter the market with the characteristics of small and large; American clearinghouses assign leverage to stocks, and the clearing house is as many as it is, but it is usually 5-6 times. The average brokerage will provide four times the level of leverage within the day and twice the level of leverage overnight.

b. Short selling is what we usually call short selling. The colloquial explanation is that we use the funds or stocks of our account as a pledge, borrow more shares from the brokerage and sell them, and then buy the shares and return them to the brokerage with less money after the stock falls, so as to make a profit through the price difference.

But shorting needs to meet two conditions:

  • The brokerage can lend you shares.
  • You have enough deposit. Of course, this is not in vain, you need to pay interest, the level of interest depends on the supply and demand of the market, that is, more people borrow, you may not be able to borrow.

It should be noted that whether a stock can be shorted or not depends on your brokerage . Generally speaking, it is difficult for stocks with low stock prices and illiquidity to borrow stocks from your US brokers for short selling. Many American stocks with a share price of less than $5 are classified as “junk stocks”. Generally speaking, American stocks with a share price above $5 have good liquidity and are easier to borrow for short selling, but please note that not all stocks above $5 can be shorted. If the market is not optimistic about some stocks at all, or if most investors are shorting, the general brokerage will decide not to allow short selling. The list of stocks that are not allowed to sell short varies from day to day. If you need to know more, you need to consult the brokerage with which you have opened an account.

7. US stock regulators: in a word, the US Securities and Exchange Commission ((SEC)) has great power, boundless power, and every detail to regulate the US securities market, so there is nothing wrong with looking for SEC or SEC’s official website; FINRA and SIPC are the most influential institutions besides SEC, and the direct impact on us is that we must look at whether we are members of FINRA and SIPC when choosing securities firms.

Please review the post on my website if you want to know Definition of Candlestick , Stock Options and Common Stock & Preferred Stock.

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