Day traders left by the wayside

One thing which no broker comparisons account for as yet is the the time it takes brokers to clear trades.

The problem:

A basic requirement of day trading is the ability to buy and sell products many times during the same day.

I have been a reluctant customer at a Swiss broker since my former broker's parent bank went bankrupt years ago. All accounts from my former bank were transfered to the new broker when it was sold.

But since the move I have had to deal with this issue: When I sell a position, the money for the sale is immediately included in my account balance - but I cannot use that money until 1-3 days after I close the position when the bank finally settles the sale with the stock exchange. This creates the following problems:

On the one hand this procedure hampers day trading because I cannot reinvest the money until several days after each sale. A day trader whose assets are parked and not being invested is losing money - and cannot really be called a day trader.

On the other hand, once securities are converted to money (when sold), the assets are no longer segregated, so if the bank were to go bankrupt all investors would lose the money which is tied up in the bank (bank insolvencies do happen in Switzerland - surprise, surprise).

I have discussed this glitch with my broker several time. They told me that they only receive the money from stock exchanges after several days, so they cannot access the money before that time - even though the amount appears to be in my account. My broker recommended that I get a lombard loan as a solution to bridge the liquidity gap.

Aside from the costs of trading with a broker, things like which stock exchanges the broker has access to and how soon the money from a sale actually becomes available (immediately, after 2 hours, or only after 2 or 3 days) would be good to know. Basically, things like that determine whether or not a broker is suitable for day taders - particularly those who do not want to use lombard loans.

Back when online brokers first appear (around 17 years back) I had an account with a U.S. broker and never had any problems. I could sell positions and use the money to buy new ones immediately. I also do not remember my previous Swiss broker holding up money for any amount of time.

If you know about a broker which has decent prices but also provides suitable services (i.e. lets me access money from sales immediately), I would certainly consider changing brokers.

Greetings,

Settlement cylces vary between stock markets and in some cases by countries. The type of securities being traded also affect the settlement cycle at many exchanges. At some exchanges, trades in certain kinds of securities may be settled instantly (this is often the case with bonds).

However, settlement periods for equities range from 2 to 3 trading days in addition to the day on which the trade was performed. U.S. exchanges currently use a T+3 settlement cycle (3 days), while most European exchanges (include SIX) use a T+2 settlement cylce (2 days).

Some brokers provide the option of fronting the unsettled money by way of a loan backed by a margin. However, Swiss brokers do not normally follow this practice. Instead, some Swiss brokers offer lombard loans to finance trades while money from sales is being cleared.

The moneyland.ch guide to using Swiss lombard loans for day trading lists a number of brokers which provide this option, and provides insights into the cost of lombard loans.

Some Swiss brokers discount fees and offer special benefits for day traders. You can use easily find the most affordable brokers for day traders by selecting the "Day trader" profile in the moneyland.ch online broker comparison.

Your concerns about the risk of holding money in a bank without being able to immediately convert it into securities are well founded. Most securities are classified as segregated assets and are not affected by bank failures.

Money held in the bank is more vulnerable. Deposits at FINMA-regulated Swiss banks are secured up to a maximum of 100,000 Swiss francs. However, this guarantee is not fail-proof, as explained in this guide to deposit protection during bank failures.

Best regards from Moneyguru