How did this day trader lose so much?
The day trader in the article was engaging in short selling.  Short selling is a technique used to profit when a stock goes down.  The investor borrows shares of a stock from someone else and sells them.  After the stock price goes down, the investor buys the shares back and returns them, pocketing the difference. As the day trader in the article found out, it is a dangerous practice, because there is no limit to the amount of money you can lose. The stock was trading at $2, and the day trader thought the stock was going to go down to $1.  He borrowed and sold 8,400 shares at $2.  He hoped to buy them back at $1 and earn $8,400 profit.  Instead, the stock went up a lot, and he was forced to buy back the shares at $18.50 per share, or about $155,400.  He had had $37,000 with E-Trade, which they took, and he is now over $100,000 in debt. "Learn something new every day... I found this interesting and thought I'd throw my 2c in. Good description (I hope) from Short Selling: What is Short Selling First, let's describe what short selling means when you purchase shares of stock. In purchasing stocks, you buy a piece of ownership in the company. You buy/sell stock to gain/sell ownership of a company. When an investor goes long on an investment, it means that he or she has bought a stock believing its price will rise in the future. Conversely, when an investor goes short, he or she is anticipating a decrease in share price. Short selling is the selling of a stock that the seller doesn't own. More specifically, a short sale is the sale of a security that isn't owned by the seller, but that is promised to be delivered.  Still with us? Here's the skinny: when you short sell a stock, your broker will lend it to you. The stock will come from the brokerage's own inventory, from another one of the firm's customers, or from another brokerage firm. The shares are sold and the proceeds are credited to your account. Sooner or later, you must ""close"" the short by buying back the same number of shares (called covering) and returning them to your broker. If the price drops, you can buy back the stock at the lower price and make a profit on the difference. If the price of the stock rises, you have to buy it back at the higher price, and you lose money. So what happened? The Plan The Reality Lesson I never understood what ""Shorting a stock"" meant until today. Seems a bit risky for my blood, but I would assume this is an extreme example of what can go wrong. This guy literally chose the wrong time to short a stock that was, in all visible aspects, on the decline.  How often does a Large Company or Individual buy stock on the decline... and send that stock soaring? How often does a stock go up 100% in 24 hours? 600%?  Another example is recently when Oprah bought 10% of Weight Watchers and caused the stock to soar %105 in 24 hours. You would have rued the day you shorted that stock - on that particular day - if you believed enough to ""gamble"" on it going down in price." "He didn't sell in the ""normal"" way that most people think of when they hear the term ""sell."" He engaged in a (perfectly legitimate) technique known as short selling, in which he borrows shares from his broker and sells them immediately. He's betting that the price of the stock will drop so he can buy them back at a lower price to return the borrowed shares back to his broker. He gets to pocket the difference. He had about $37,000 of cash in his account. Since he borrowed ~8400 shares and sold them immediately at $2/share, he got $16,800 in cash and owed his broker 8400 shares. So, his net purchasing power at the time of the short sale was $37,000 + $16,800 - 4800 shares * $2/share. As the price of the stock changes, his purchasing power will change according to this equation. He's allowed to continue to borrow these 8400 shares as long as his purchasing power remains above 0. That is, the broker requires him to have enough cash on hand to buy back all of his borrowed shares at any given moment. If his purchasing power ever goes negative, he'll be subject to a margin call: the broker will make him either deposit cash into his account or close his positions (sell long positions or buy back short positions) until it's positive again. The stock jumped up to $13.85 the next morning before the market opened (during ""before-hours"" trading). His purchasing power at that time was $37,000 + $16,800 - 8400 shares * $13.85/share = -$62,540. Since his purchasing power was negative, he was subject to a margin call. By the time he got out, he had to pay $17.50/share to buy back the 8400 shares that he borrowed, making his purchasing power -$101,600. This $101,600 was money that he borrowed from his broker to buy back the shares to fulfill his margin call. His huge loss was from borrowing shares from his broker. Note that his maximum potential loss is unlimited, since there is no limit to how much a stock can grow. Evidently, he failed to grasp the most important concept of short selling, which is that he's borrowing stock from his broker and he's obligated to give that stock back whenever his broker wants, no matter what it costs him to fulfill that obligation."
"The American ""Security Exchange  Commission"" has imposed a rule upon all stock trading accounts. This rule is ""Regulation-T"". This rule specifies that stock trading accounts must be permitted three days after the termination of a trade to settle the account. This is just fancy lingo to justify the guarantee that the funds are either transferred out of your account to another persons  (the person that made money), or the money flows into your account.  A ""Day Trader's"" account avoids the hassle because you're borrowing money from your broker to trade with and circumvent Reg-T.  It's technically not how long you hold the trade that determines if you're a day trader, or not. It's your accounts liquidity and your credit worthiness." Pretty sure the null hypothesis here is that trading equities at a high frequency is a zero sum game.   The is no gain that isn't someone else's loss.  No goods are created, no knowledge is gained, no value is produced.  Note, I didn't say value is destroyed either. As I understand it, it was a mark to market loss. Which means that JPM has booked an unrealized loss while some hedge funds have booked unrealized gains. Now over the next few months as JPM tries to unwind he trades, these losses will be realized. Short-term, the game is supply/demand and how the various participants react to it at various prices. On longer term, prices start to better reflect the fundamentals. Within something like week to some month or two, if there has not been any unique value affecting news, then interest, options, market maker(s), swing traders and such play bigger part. With intraday, the effects of available liquidity become very pronounced. The market makers have algos that try to guess what type of client they have and they prefer to give high price to large buyer and low price to small buyer. As intraday trader has spreads and commissions big part of their expenses and leverage magnifies those, instead of being able to take advantage of the lower prices, they prefer to stop out after small move against them. In practise this means that when they buy low, that low will soon be the midpoint of the day and tomorrows high etc if they are still holding on. Buy and sell are similar to long call or long put options position. And options are like insurance, they cost you. Also the longer the position is held the more likely it is to end up with someone with ability to test your margin if you're highly leveraged and constantly making your wins from the same source.  Risk management is also issue. The leveraged pros trade through a company. Not sure if they're able to open another such company and still open accounts after the inevitable. "Sorry but you already provided the answer to your own question.  The simple answer is to 'not day trade' but hold things for a longer period and don't trade a large number of different stocks every week. Seriously, have a look at the rules and see what it implies.. an average of 20 buys and sells of longer term positions PER DAY is a pretty fair bit of trading, that's really churning through the positions compared to someone who might establish positions with say 25 well picked stocks and might change even 5 of those a week to a different stock.  Or even a larger number of stocks but seeking to hold them for over a year so you get taxed at the long term cap gains rate. If you want to day trade, be prepared to be labeled as such and deal with your broker on that basis.  Not like they will hate you given all the fees you are likely to rack up.  And the government will love you also, since you'll be paying short term gains taxes.  (and trust me, us bogelheads appreciate the liquidity the speculative and short term folks bring to the market.) In terms of how it would impact you, Expect to be required to have a fairly substantial balance ($25K) if you are maintaining a margin account. I'd suggest reading this thread My account's been labeled as ""day trader"" and I got a big margin call. What should I do? What trades can I place in the blocked period?" I've worked at a bank, and even the best prop traders have low Sharpe ratios and large swings.  I would advise that the average person without access to flow information does not a chance, and will end up losing eventually. This was all luck, that amount of leverage will destroy your account in a single bad trade. You profit is way less than it should be because you are getting killed on fees.  Take a look at the bitcoin trade, you should have 2,157.30 in profit but you only have 1825.42. And your currency trades were consistently positions that were worth $400,000 dollars, where you were pulling out ~$50 in profits, even though they should have been ~$80 profits. You are consistently getting 30% less than you should be, and consistently betting waaaaay bigger amounts than you account can really handle. Bad trades will probably have 30% greater losses than actual, and when the market moves the wrong direction then a single position will wipe out your account. Yes, you could have just bought bitcoin and gotten great profits. You totally nailed the directions of the markets! It is just a matter of time before you blow up, the trailing profits won't always help you when the market starts going down first. Also a layman, and I didnt read the article because it did the whole 'screw you for blocking my ads' thing. But judging from the title, I'd guess someone bought a massive amount of call options for VIX, the stock that tracks volatility in the market. Whenever the market crashes or goes through difficult times, the VIX fund prospers. The 'by october' part makes me think it was call options that he purchased: basically he paid a premium for each share (a fraction of the shares cost) for the right to buy that share at today's price, from now until october. So if the share increases in value, for each call option he has, he can buy one share at todays price, and sell it at the price it is that day. Options can catapult your profit into the next dimension but if the share decreases in value or even stays the same price, he loses everything. Vicious redditors, please correct the mistakes ive made here with utmost discrimination Even worse than that, apparently JP M doesn't understand what Risk analysis and oversight are for.  If I had money with them, i'd take it out.  It's utter incompetence for a trading unit not to have strong risk management. "You have already indicted in another question, titled Which risk did I take winning this much?, that you did not understand (1) Why a previous trade made you as much money as it did; nor (2) How much you could have lost if things went a different way. You were, in that other question, talking about taking short position, without understanding (apparently) that a short position can create losses exceeding the value of your initial investment. Can one make money doing day trading? Yes, an educated investor may be able to prudently invest in short term positions making knowledgeable judgments about risk, and still make money. Can you make money doing day trading? Well, maybe. You have in the past, in what you described in a previous post as ""winning"". So even in your own eyes, you were effectively gambling, and got lucky. Perhaps the more relevant questions you can ask yourself are: Can you lose money doing day trading? And, most importantly, Are you more likely to lose money day trading, or consistently make money by taking on reasonable and educated risks?" I'm talking about day trading here. Automated day trading never worked for me. But I will also admit I am terrible at automated day trading. I'm sorry if the premise of my post sounds off. I know it sounds like I'm being an idiot by not going the automated route, but it works for me and that's why I'm going to stick with my own techniques. Why change it if it's working? "For sake of simplicity, say the Euro is trading at $1.25. You have leveraged control of $100,000 given the 100x leverage. If you are bullish on the Euro, you are long 80,000 euros. For every 1% it rises, you gain $1000. If it drops by the same 1%, you are wiped out, you lost your $1000. With the contracts I am familiar with, there is a minimum margin, and your account is ""marked to market"" each night. If your positive balance drops too low, you get the margin call. It's a zero sum game, for every dollar you make, there's a guy on the other side of the trade. Odds are he's doing this full time and is smarter than you." "Let's do some simple math: you front 1500, they leverage you 10:1.  You now have 15K. 3$/15000. Basically you are going to be paying to say buy 100 SPY's @ 133 ($13300 total) 3$. I pay 1$ for the same trade.  How many trades a day are you going to have to make on that to make money? as 10 points on SPY = 1$ per share (and this is if you're good).  Your average win on trades might be 0.2c * 100 = 20$ If you can make ""5"" good trades that would set you back 3*2*5=30$  From your potential 100$ take in this case you would walk home with 70$ but wait theres more!, you only get 80% of this and they get 20%. So you get 56$ and they get 14.  They have made a total of 44$ in this case,you've made 56$.  How far are they gonna leverage you and what kinda sizes can you trade up to on 3$ transaction cost?" My grandfather owned a small business, and I asked him that very question.  His answer was that year-end closeout is very time-consuming, both before and after  EOY (end of year), and that they didn't want to do all that around Christmas and New Year. "A C-Corp is not a pass-through entity, any applicable taxes would be paid by the Corporation, which is a separate legal entity from yourself. If you use the points to purchase something for yourself, that would constitute ""income"" to you, and would be taxable on your personal income tax."