Does Ally Invest Support Day Trading? Policy, Explained

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Jun. 4 2021, Published 2:41 p.m. ET

Finding a home for your day trading activities can be difficult. Oftentimes, banks or apps put limitations on day trading to keep people from suffering capital losses. Is Ally Invest good for day trading?

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Here are the details on the day trading policy from Ally Invest, and whether or not you should use it for your own day trading purposes.

How does Ally Invest define day trading?

Day trading occurs when an investor executes the purchase of a security and then sells the position during the same day. The move happens during stock market hours (9:30 a.m. to 4:00 p.m. ET on business days, excluding holidays). If you hold the position until the next market day, there isn't any day trading involved.

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According to Ally Invest, customers who complete four or more stock or option day trades within a period of five business days using a margin account are considered pattern day traders.

Ally Invest has rules against pattern day trading.

Compared to some other platforms, Ally's definition of a pattern day trader is actually rather relaxed. For example, you must be trading on margin to be considered a pattern day trader on Ally, which means you can day trade with a cash account. Pattern day traders will receive a warning from the institution or have their trading privileges suspended.

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For those who do day trade with a cash account, you must maintain a minimum of $25,000 in account equity to keep your day trading privileges.

You have a certain amount of day trading buying power on Ally Invest

If an Ally Invest user's account meets the minimum equity requirement, they might be eligible for something called "day trading buying power." This means it's equal to your total cash equity as of the previous business day's close. Day trading buying power can only be used within the same day. Basically, if you purchase a position with day trading buying power that exceeds your equity one day, you must complete it before the market closes.

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If you exceed your day trading buying power or any other day trading regulations, Ally Invest can place you on a 90-day restriction—during which you won't be able to make any online trades at all.

Why does Ally Invest place day trading restrictions?

Like any institution regulating day trades, Ally Invest is aware of the risks associated with day trading. Investors assume responsibility that they know what they're doing, but even so, "large and immediate financial losses" can occur. When trading on margin, this can become the bank's problem. 

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Day trading can also be costly in terms of trading commissions. Small gains might not even be enough to make up for fees.

Is Ally Invest good for day trading?

Ally Invest might be good for day trading for people with a regular cash balance of $25,000 or more. Other investors who want to take part in the practice ought to look elsewhere, like Fidelity, TD Ameritrade, and E-Trade. Each platform has its own distinctions, so be sure to check out the rules so you don't get flagged.

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