Question: Buying and selling the same stock over and over again
I have a question:
For about a year now, I have been paper trading, starting from 3000 USD and I'm now at roughly 50.000 USD. Most of that money was acquired through buying and selling a few different stocks, for example SNDL and most recently TNXP. On average I made around 100 trades in a day (I didn't trade every single day). Regarding stock pricing, I put a buy limit at 1.03 USD and a sell limit at 1.04 USD (talking about my most recent trades on TNXP). As I said before, I did this about 100 times a day and managed to generate some good profit. Now, considering that we are talking about a paper trading account, there really aren't any consequences to my style of trading. I'm planning to start trading with actual real 3000 USD at the end of August and I'm wondering if that kind of trading is legal or if there are any limitations to how often you can buy and sell the same stock.
It sounds like you are essentially trying to fill the role of a market maker. This isn't a winning strategy as you don't have scale, speed, and informational advantage of a market maker. The profit on your PA was probably due to the fact that it doesn't simulate transaction fees so you would almost certainly make a loss following this strategy for real.
What if it's commission free?
Thank you very much, it does seem too good to be true .
atleast on RobinHood, you are banned from making more than X amount of daily trades if you have under $15,000 dollars in your portfolio.
Has something to do with being marked as a patter-day trader
I'm pretty sure his taxes would be the same as if he had bought a single stock with 3,000 and got super lucky and saw his portfolio go to 50,000
It’s not. You pay income tax rates on anything held less than a year vs 15% cap gains (I assume for OP). A few scenarios below:
*Stock goes up steadily: Because OP is selling and buying regularly, they pay more in commissions, more in taxes (potentially way more since it’s more volume than buy and hold), and lose out on some gains post sale (when they’re in cash) vs buying and holding
*Stock is volatile but largely flat: OP generates a huge tax bill for no benefit
*Stock is volatile but upward trending: This can go either way but in the long run it’s more likely that the extra costs of taxes and commissions plus constantly going to cash and missing some upside eat value from your portfolio than OP realizes the benefit of their buy and sell strategy - especially at such a thin “spread” between highs and lows
*Stock trends down with volatility: now you’re locking in tax losses instead of gains, but ultimately you’re probably better off selling and buying a better stock…
*Stock trends down steadily: you’d be better off trading to another position in any scenario
I do know some people that have done OK short term trading one or two stocks but in all cases those people are making big bets on big swings (buy at 50, sell at 100, buy at 70 etc) and in all cases were experts in the stocks industry and enthusiastic about following sector and company news. And they were trading every few weeks or months at the least. OPs strat is just a tax generating machine. You can end up with more taxes than gains (or even value of the stock if it’s volatile enough and you trade enough).
Pattern Day Trader rule gonna prevent u from doing so
isn’t that only on margin trading?
Yeah. You would be fine with a cash account. If I recall correctly the actual limit for traders in retail platforms is something like 390 trades per day.
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