I have made this blog just to make sure no one wanders like me digging for answers related to legal issues while trading US stocks.
Some people don’t answer these when approached, they don’t understand that if they answer they’re not only helping them but also other people from falling into legal issues.
So please if you know the answer just answer them.
If there are any more questions add them in the comments, I’ll add them here if I know the answer.
Note: this including my comments should not be considered like any kind of legal advice!
Here are the things I found:
1.) What type of accounts can be opened for trading/investing US stocks?
Ans: Only cash account can be opened, even if broker allows margin account, don’t open it, it’s illegal.
2.) what is a cash account.
Ans: In this account, you get 0 leverage/margin, you pay full price on whatever stocks you long.
You are not allowed to short stocks with a cash account, shorting requires a margin account?
3.) what is PDT rule?
Ans: PDT only applies to margin account with cash below $25k and also only applies for brokers which are operated in the USA.
Example: Say you have a margin account with $20k (which is below $25k required for no PDT)
You can only do 3 daytrades a week, that’s what PDT means.
4.) what is GFV (Good faith violation)?
Ans: GFV applies to the cash account, If you sell a share before it is settled that’s called GFV violation
US stocks take T+2 days for the cash to settle,
Say you have a cash account of $1000, so if you buy $1000 of X stock on Monday, and sell the same day, that cash will be back in your account on Wednesday, in that case, you have no more cash to buy and sell. at this point, if you buy another stock and sell before Wednesday(before cash is settled) that’s when GFV happens and your account might get locked for 90 days.
5.) can we do intraday/daytrade in US stocks?
Ans: In RBI circular we have seen they mentioned to remit money for investment, not for intraday, but they never mentioned to not get into intraday, but I would say this is a grey area, better be away, it’s your wish.
6.) can we do swing trades?
Ans: Swing trades might fall under short term investments this is not considered a day trade, so it might be legal to do so.
Ans: RBI prohibits those.
8.) How to open an account?
Ans: My best broker: Webull(no minimum, no commissions) - never seen an app with so many features.
Here’s a referral link to the broker, you get two free stocks for signing up: Sign up
online charts can be accessed here without signing up: https://app.webull.com/trade
There are other broker I would lightly recommend:
Vested(from India): But they’re new and don’t have many stocks like webull
Interactive brokers: well pay for commissions $1 for trade.
TD Ameritrade: No commissions and no minimums but the application process is too long.
9.) how to deposit money at the broker?
Ans: Even if the broker allows online wire transfer(where there might be no option for what purpose you’re remitting money) don’t do it, only transfer money through A2 form by visiting your bank