Can you buy and sell a stock repeatedly?

Stock trading often turns into an adrenaline-driven activity with investors eyeing profits from price changes in a short period of time. However, security regulators may impose some restrictions to prevent investors from entering the high-risk zones.

Apart from regulatory limitations, stockbrokers also discourage investors from undertaking multiple buy and sell trades within a day. Moreover, the commission charged on each trade can soon exhaust the balance of a trading account.

Now that we have an overview, let’s dive into the details of buying and selling of stocks repeatedly:

Is buying and selling of stocks repeatedly allowed?

This is the first question that pops up in our minds.

Formally, there are no restrictions on the number of trades carried out by a stockbroker or an investor in Canada. These transactions could be made in a day, or over a longer period. However, the only requirement is the trading account must have enough funds to pay for transaction and commission fees.

Let’s now discuss how do investors buy or sell stocks repeatedly.

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How can a stock be bought or sold multiple times?

Before discussing the riskier option of buying and selling a stock within a day, let us discuss the safer method for such trades.

The safest way to buy or sell stocks repeatedly is to make these transactions in a staggered manner, over a longer period.

This method is comparatively safer as infrequent trades generally do not attract regulators’ scrutiny or involve high risks since they don’t lead to volatility in a stock’s market price.

Such trades are also allowed for short periods.

For trading a company’s stock exchanging hands multiple times in a day, an account operating in Canada must have enough funds to pay for the commission fee. Generally, day traders are involved in such high frequency trades.

Many investors choose the margin trading account as these accounts allow them to reap quick profits arising from fluctuations in a stock’s market price through their credit option.

A margin account allows an investor to borrow money from the brokerage to purchase stocks against the existing securities in their account id runs out of balance.

However, a drop in the maintenance margin level in a trading account prompts the brokerage to make a “margin call”. This action asks for replenishing the trading account with required funds within a few days (generally withing three days).

There are also other types of accounts an investor can opt for, but margin trading account is sought out for frequent trading of securities.

Furthermore, the US Securities and Exchange Commission deems it necessary for investors in the US, or those trading in American securities, to have a minimum balance of US$ 25,000 in their brokerage account for security transactions.

This requirement is applicable to traders categorised as “pattern day traders” in the US. Such traders carry out four or more transactions with a period of five business days.

An interesting way of trading a stock multiple times is through the arbitrage strategy. One can buy and sell a stock repeatedly within a short period of time if the securities are listed on different platforms.

This method allows many investors to earn gains off minimal price changes in the stock’s market value on different exchanges.

But what are the cautions points? Let’s find out.

Caution!

As far as infrequent trades are concerned, the repeated sale and purchase of securities is associated with low risk, as it keeps price volatility risk at bay.

However, for undertaking frequent buy/sell transactions, one must be acutely aware of the market conditions and have a solid grip on trading strategies.

If trading in Canada, frequent purchase and sale of shares may invite scrutiny and due diligence from the Canadian Revenue Authority. This process is carried out to determine the individual tax rate for an investor.

Frequent traders are generally subject to a higher tax rate as their transactions are classified as business income instead of capital gains.

As per the Canadian Revenue Agency, 50 per cent of the capital gains are taxed at a fixed rate. Frequent traders are generally required to pay taxes on all their trading profits.

Many a time, strategized trading of a company’s stocks by traders may lead to manipulation of its market price. While professional investors may be able to ward off these risks through their investment acumen, amateur and unprepared ones are more likely to suffer losses.