In general, I have found that many people are confused about the rules around day trading. Even though I prefer long-term buy-and-hold investing, I realize that there are people who like to trade stocks on a daily basis. In the United States, there are rules in place around day trading. This includes trading the same stock repeatedly over a short period of time. So, can you buy and sell the same stock repeatedly? I did some research and found the answer!
Yes! There is nothing illegal about buying and selling the same stock repeatedly in your brokerage account. In fact, there are many traders who will only buy and sell ETFs that track major indices. These include the QQQ ETF which tracks the NASDAQ and the SPX index which tracks the S&P 500.
Sounds easy right? Why doesn’t everyone just trade the same stock repeatedly? First of all, most people simply do not have the time to be trading stocks during the hours that the market is open. Day traders can do so because this is usually their main source of income. If you are thinking about trading the same stock repeatedly, read on, because there are some FINRA regulations you need to abide by.
Can you Buy and Sell the Same Stock Repeatedly?
The answer is yes! Of course, there does need to be some context for your situation. How frequently are you planning to buy and sell this stock? Are you a beginner trader or are you an experienced one? These are things that your brokerage will care about if you make too many trades within a short period of time.
New to Investing? Check out our article: How Long Does it Take to Make Money From Stocks?
Do you know who else will care? FINRA. This is one of the regulating bodies of the stock market and it stands for the Financial Industry Regulatory Authority. What exactly does FINRA care about when it comes to stock trading? FINRA regulates a status called Pattern Day Traders. This is something you certainly need to be aware of if you plan on trading the same stock repeatedly.
What is a Pattern Day Trader? In the United States, if you make more than three-day trades within a five-day period, FINRA will flag you as a Pattern Day Trader. Is this illegal? Absolutely not! But you do need to have at least $25,000 in your brokerage account or have access to a margin account. If you do not have these things in place, then your brokerage can actually limit your trading or stop you from making any more trades altogether.
Can you Buy and Sell the Same Stock Multiple Times in One Day?
This is where the Pattern Day Trader rule comes into effect. Remember when I said there needs to be some context? If you plan on repeatedly buying and selling the same stock within a few days, then you will have to adhere to the Pattern Day Trader regulations. But, if you are planning to do it over a few weeks or even a few months, then it is perfectly legal.
But let’s go back to buying and selling the same stock multiple times in one day. First of all, this is much easier said than done. Trading the same stock multiple times in one day requires an understanding of the stock’s chart. You also need to have your finger on the pulse of the market itself. This will tell you how volatile stocks are trading during that particular session.
If you have an account balance of at least $25,000 or a margin account, then feel free to buy and sell that stock as many times as you want. There is no limit to this as long as you meet FINRA’s requirements. So why is there so much confusion? Buying and selling the same stock repeatedly seems like a fairly unique strategy if I can put it that way. People might just be confused and think it is some sort of stock manipulation. Don’t worry, no matter how many times we buy or sell the same stock, we will have little impact on the markets.
For Canadian Readers: Can you Day Trade with Wealthsimple?
What is the Wash Rule in Trading?
The Wash Rule is something you will want to look into if you do plan on buying and selling the same stock. This rule is in place to prevent traders from artificially harvesting tax losses. How do they do this? By selling a stock at a loss and then re-buying the same stock within 30 calendar days from the initial sale. This will, of course, count as a capital loss when it comes time to report your taxes.
This is something that is monitored by the IRS and every American brokerage. You can feel free to purchase the stock again after 30 days, but by this time, the price has likely moved. You can also buy similar stocks or an ETF that holds that stock. There are some ways around it, but the Wash Rule is a regulatory rule for reporting taxes.
How does this affect you when buying and selling the same stock repeatedly? Well, if you buy high and sell low, and then keep trying to buy the same stock, the IRS and your brokerage will catch on. So if you are planning to trade the same stock repeatedly, you are going to have to make sure you have made gains each time you do. Otherwise, you could get a call from your brokerage or worse, the IRS.
The Bottom Line: Can You Buy and Sell the Same Stock Repeatedly?
The answer is yes, but with some caveats. I talked about both the Pattern Day Trader rule and the Wash Rule. Both of these regulations need to be taken into account before trading the same stock repeatedly. The first could limit your ability to trade on your brokerage and the latter could affect you come tax season. Before you look to buy and sell the same stock, read up on these rules so there are no surprises!
Thanks for taking the time to read this! I hope it helped!