I'd like to get a discussion here about the recently passed (2001) legislation restricting those with less than $25,000 from pattern daytrading. It's in my opinion that an adjustment at the least should be made where a waiver or maybe even a test of sorts could be administered in place of this *all-inclusive* rule. My argument is based on the fact that these markets can have alot of chop to them which is induced by several reasons including high FT for which the majority comes from prop and other institutional firms. If you ask me, it's almost a perfect circle for proprietary businesses in that I believe it has a great affect on their churn and burn business models. My focus here, however, isn't on hft as there are many reasons for choppy markets, but they do have an influence. If I place a trade with an intention of holding for a longer period than a day, and the market turns against me, naturally I'm going to want to minimize a loss so I will close out to avoid. This doesn't mean that I wouldn't want to get in again that same day which I will do once it appears settled, but now, I have a *daytrade* racked up on the 5 day period. With the ultra-low commissions nowadays and the changed landscape from the late 90s, this regulation doesn't protect me as it originally was intended and makes it difficult to trade responsibly. Does anyone else feel this way, and is there a possibility that this could get amended?
There is a "test of sorts" to bypass PDT- It's called the series 7. Regardless, I do agree that PDT is yet more useless (over)regulation.
absolutely useless...but... nobody gives a shit about that..who needs those whiners with couple K on account,when they have bots now..bots, that create an illusion of market activity..one more hint that wall street doesn't really give's the shit about retail guys..more-they don't want them..exchanges don't want them either.. i, personally would love to see more fresh meat from all over the world(asians,indians are more than welcome). years before pdt are the best years.
I agree - $25,000 minimum is a joke, and the 90 day suspension is insane. I recently closed an option position that had a slight delay in confirmation. I then made a 2nd attempt to close only to end up opening another position, I then closed that position within a minute. They considered that a day trade and I got dinged for it.
Exactly. This is what I'm talking about. Responsible trading that shouldn't have to be concerned with this nonsensical variable in the game. It doesn't help. So what, realistically, can be done about this? A petition? I'd really like to hear ideas on a solution.
+1 for this thread. Sadly, nobody that has any sort of power will give enough of a shit about this to do anything. (hope I'm wrong) ...makes me want to take the series 7 but I don't want to be kicked out of any future interviews for having it! :eek:
You know I remember thinking back then how un American it was to not allow people to lose their own money if they so please... How disgusting it was to watch the nanny state grow even larger all in the name of protecting the little guy from himself while all they really were doing is trying to widen the spreads and protect the mmakers... But now they want to outlaw walking and texting in the name of safety ( we all know it's to raise revenue) so the pdt doesn't look so bad since I'm even more disgusted... What happened to our country..... ooopps gotta run, American idol is on... !!!!!
I do understand this viewpoint but the way I'm looking at it is, if a bunch of stoners can get pot legalized through a loophole, an amendment I wouldn't think wouldn't be as difficult as their amazing accomplishment. I believe it's simply knowing the path and making sure everything is in order at the time it needs to be.
I was told by my firms compliance dept that the PDT rule was created by the SEC at the instruction of DTCC (Depository Trust Clearing Corporation). It was not created to protect traders from the potential dangers of daytrading. It was created because DTCC wanted to try and limit the amount of capital they were using to clear so many trades. It seems that they believed it would slow down the amount of retail trading that was going on with the rise of daytrading in accounts at firms like Ameritrade, Schwab etc. I remember how things were prior to the PDT rules. Anyone could trade as much as they wanted... even with a $3000 account guys could have like 100 trades in a day. It was fun to watch. Now even a person with $100,000 in their designated pattern daytrader account can get penalized if they hold overnight. Overnight holds of positions reduce your daytrading buying power and it does not come back the next day... even when you go all cash... it does come back the following day though. So a pattern daytrader who has equity above $25k can still get screwed if he is not in all cash at the end of the trading day, even if he is only using his cash or regular buying power for marginable securities (2x excess equity). Once an account has been desginated as a PDT account, you cannot spend more than your daytrading buying power, even if it is less than your cash balance. An example that happened to someone I know. They had $87,000 in cash in their margin account. However the account had been designated as a PDT account. They bought $85k in securities and decided to hold them overnight, leaving $2000 in cash in the account. The next day their daytrading buying power was at $8000. They decided to sell their position, which brought in $86,000 in cash...so now their cash balance is $88,000. However since their start of day daytrading buying power is only at $8000 ($2000 x 4). When they tried to place a trade using $50k of their cash they received a pop up warning that if they spent more than $8000, they would have gone into a daytrading buying power call. Some online firms have their websites setup so that in this scenario the customer could not even enter an order to spend more that the $8000 purchasing securities, even though they have a cash balance of $88,000!!! Now the folllowing trading day the daytrading buying power went back up to $352,000 so they could use all of their cash again...plus their margin. Fortunately the customer was able to request to have the PDT restriction removed from their account, since they were not normally a day trader, but this was a one time exception. They were warned that if they made more than 3 day trades in 5 business days, the PDT designation would go back on the account and it would be permanent. Market conditions and not DTCC should be determining when traders choose to exit their positions, but as someone said previously, no one cares about the retail trader anymore.