In this case, free riding refers to using the unsettled proceeds of a sale to invest in another security. Thus, in a Cash Account, you can only trade 1X the cash in your account on a daily basis. In other words, your total aggregate buys on a given day cannot exceed your cash. Here’s an example:

Let’s say you have $10,000 in cash and no positions in a Cash Account on Monday morning.

At the open, you buy a stock for $10,000 and sell it an hour later for $12,000—a classic day trade that has netted you a nice 20% profit. Later Monday afternoon, you might see another opportunity and want to invest some or all of that $12,000. But you can’t do that in a Cash Account. The $12,000 is not settled funds, even though it would appear as Cash in myTrack. You would be able to use the $12,000 on Tuesday, but not Monday. Using any of the $12,000 on Monday would constitute free riding and would generate a call.

If you had started Monday morning with a $10,000 equity position and no cash in a your Cash Account, you could sell the position and take the $10,000 to invest in another equity position. If you sold that new position on Monday (which means you did a day trade), you would not be able to use the proceeds to invest until Tuesday.

One important note about the free riding rule: THE MYTRACK SYSTEM IS NOT DESIGNED TO PREVENT YOU FROM REUSING THE $12,000 IN CASH—YOU ARE RESPONSIBLE FOR KNOWING THE FREE RIDING RULE AND NOT VIOLATING IT.)

IS FREE RIDING REALLY ENFORCED?

In the past, some brokerage firms have let good customers slide a bit on free riding violations. No longer. The NASD has announced that it is demanding strict enforcement of the free riding regulations. THREE FREE RIDING CALLS WILL MEAN THAT YOUR ACCOUNT WILL BE CLOSED.

WHAT SHOULD I DO TO BEST PROTECT MYSELF?

If your trading activity includes even an occasional day trade, we would strongly suggest you convert your Cash Account to a Margin Account (assuming you qualify). A Margin Account nets out daily, relieving free riding concerns.

Steps to Convert Your Cash Account to a Margin Account

1. Get a Margin Account Agreement (it’s called the myTrack "Acknowledgement Page"), which is available online at http://www.mytrack.com/forms or by calling us.
2. Initial the Margin Box in the upper right-hand corner.
3. Sign your name at the bottom.
4. Mail the initialed, signed agreement in to myTrack, Attn: New Accounts, 691 Fulton Street, Brooklyn, NY 11217.

If, upon review, you qualify, we will change your Account to a Margin Account.

If you become a Pattern Day Trader, you will have to meet the $25,000 minimum equity requirement.

WHAT IF I DON’T WANT TO USE MARGIN?

Margin is a little like a credit card—just because it’s issued to you doesn’t mean you ever have to use it. However, Margin isn’t for everyone and does carry certain risks. To read about Margin and its risks, please see our Margin Disclosure Statement.

If you’re converting a Cash Account so you can day trade, we’ll give you a Margin Account that has no increased Buying Power. That way, you won’t accidentally use more money than you would in your Cash Account. If you want to have access to Margin Buying Power at any time in the future, just ask us for it and we’ll grant it.