The SEC and FINRA (regulatory agencies) don't allow day trading for accounts with balances less than $25,000. If you exceed 3 (?) day trades in the past 5 days, your account is locked from day trading for 90 days (so if you buy a stock you will be unable to sell it that day). All exchanges enforce this rule, not just Robinhood.
The real story is that the plebes realized they could make 2% per day by day trading and selling short. I did this with my dad and we were up about $40k before 9/11 wiped out most people's gains (this was back when Apple stock was in the $12-20 range). Edit: my dad never sold short because he felt it was unsupportive of companies, but had he done it to balance each of the buy/sell targets I gave him, he would have been up $80k.
I remember being demoralized that I couldn't trade on margin because I would likely never be able to save $25k with my student loan and credit card debt. But if I read the rules correctly now, I don't even think you can sell short anymore unless you have $25k.
This keeps the real day trading profits back in the hands of the rich and I feel that it could/should be challenged as discrimination. Also it breaks the ZOI rule so doesn't sit right with me..
Day trading is not some magical way to profit. Most people who make money around day trading are selling day trading services. Few make money over the long term day trading, and even fewer (any?) are making 2% every single day (400% over the course of a year with ~200 trading days).
The rules were put in place to protect people from being lured into day trading by day trading service companies. The thought was to prevent people from spending their rent money thinking they were going to get rich day trading. Also, trading with small amounts of money pushes people into penny stocks, which is an even faster way for someone to lose all their money.
Good catch, that could be some selective memory on my part. What I remember most is that it was very easy to make 2% on a good day, and we did that over the course of about 6 months or a year, trading about every other week and pulling the money out to sit idle on weeks that we were too busy to trade. I remember there were several times as many days that gained 5% (trading 2-4 times each day) than days that lost 5%.
One of the charts in etrade said we were up $40k over about a 4 month period and my dad had about $50k in play, trading on margin so working with about $100k. So the real return was more like 80% over 4 months, so I guess 240% for a year although I don't know if I'm doing that math right.
My biggest fear most days was honestly that there wasn't going to be enough volatility for the stock to move, meaning we threw away $7 to $28 on trading fees. I was moving furniture at the time and only made $80 on a good day so that was a lot of money for me then.
No day trader makes 2% a day without putting all their capital at risk. You can pick up nickels in front of steamroller till that one day it runs you over. I day trade for a living and consider an extremely good month making 5% of total capital in my trading account.
If you short high beta tech stocks on margin as you mentioned in your post, you'll get wiped out really fast. Go to Wallstreetbet subreddit and pull up the thread where a guy lost 1.5mm this year, he lost it shorting high beta tech stock that did a swing of 10% in the wrong direction forcing a margin call and a liquidation.
If you wanted to capture the downside of a stock, you can buy puts without a margin account. You should probably really understand the market better before you expose yourself to a larger risk than the money you put in.
"I hope this gets challenged in court at some point. The rules went into effect on September 28, 2001 as a knee-jerk reaction to the dot bomb and 9/11:"
The rules were approved in February 2001, so they can't have been a response to 9/11, kneejerk or not.
Intraday trading is much less risky than holding a position overnight. A lot of movement happens in the first and last 30 mins of trading, and over lunch. You can exit unproductive positions quickly, whereas if you couldn't day trade you'd only be able to sit and watch how the cards are falling.
Can't you just set autosell conditions to do the equivalent of the function with less time sensitivity? If you can't handle a $10 drop cut out at a $5 and lock in savings if it rises by $15.
Well 2001 was before trading bots for one thing, so most stocks had a daily heartbeat that was easy to follow. Several days a week the volatility on AAPL was easily +/- 1% each day, so we just bought low and sold high. I averaged 2% per day roughly 4 out of 5 days per week, losing 2-5% on the occasional day I was wrong. Also it was easy to predict when people would sell their stock on Fridays before 3 day weekends for example, so we'd sell Thursday afternoon or whatever.
Also we bought right after the dot bomb happened on 9/29/2000 when most all the tech stocks fell by half or more in one day, so there was a constant upward trend where people wanted to start gambling in stocks again over the next year:
You have to remember that these events aren't random. I personally feel that they're controlled by whoever holds the purse strings, so a handful of extremely wealthy illuminati were getting nervous towards the end of the dot com and housing bubbles and made the call to pull the plug so they could re-buy after everything crashed (see: It's a Wonderful Life).
We're overdue for that with the mobile and web 2.0 bubble. The main difference today is that older folks like me remember the lean times so more startups today have pulled themselves up by their bootstraps and are somewhat immune to these market manipulations vs propped-up brands like pets.com in the 90s. But don't think for a second that crashes (or booms) like these with a 50% move in one day can't happen again.
As long as I'm on my soapbox, I wish that I could dabble in a little machine learning and look for correlations that tend to swing together or oppositely one another. No matter how much the bots tend towards noise, there are still markets that are connected that should be easy to spot. I don't know what else I would try though because I stopped following the market after the housing bubble when people started trading foreign currency and Bitcoin etc. I could have bought $20,000 worth of bitcoin when it was $10 so it's all just monopoly money to me now. I feel that chasing easy money is maybe distracting us from real human progress. But what do I know, I'm just the poor sap stuck in the universe where I never made it big hahah.
Indeed these rules are yet another way to gatekeep wealth. They are essentially welfare for the already rich, who can buy their way out of regulation via the fact they already own money.
