Day Trading Margin Rules from IB

Discussion in 'Trading' started by tc, Aug 15, 2001.

  1. huby


    This crazy rule is just creating question after question. Hopefully we'll all figure it out soon.

    I also noticed that in IB's email it had "SAME DAY" in bold. Does this mean you can safely make two round trips every day without being tagged a pattern daytrader? Or three for that matter. Just as long as it's not more than three? This would be 10-15 trades a week which is still a joke, but much better than 3 per week.

    And what about scaling out? What happens if I buy 200 shares and then sell 100 at one price and 100 at aonother? Does this count as one round trip or two?
    #31     Aug 16, 2001
  2. I understand you can make 3 intraday roundtrips in a five day period - not 3 per day in this period !!.

    paceadvantage :
    Can't follow you, how you came to this conclusion.

    IB is not trying to prevent their customers from being tagged as PDT's.
    To the contrary, they restrict all accounts < 25K to the 3 roundtrip rule.
    The new rule does not mean, that smaller accounts can't get margin - they just can't trade more often than 3 daily roundtrips within a 5 day period.

    Even with a smaller account than the 25K ( completely arbitrary IMHO ), you can still trade on margin and short stocks - just not as often as you want to during the course of a day and without the new 4:1 margin.
    But if you swingtrade overnight or stick with 3 daytrades in any 5 day period - no further restrictions.

    You have to understand, that IB has already automatted margin controls in place, that are somewhat different compared to most other brokers and daytrading firms.
    You don't get a margin call from IB, having 3 - 5 days time to fund your account with additional cash.
    IB's system closes parts or all of your positions automatically and even intraday, at the very moment your maximum margin is exceeded. No need to send emails and margin calls.

    #32     Aug 16, 2001
  3. Yes, smaller accounts CAN get margin ONLY if they are NOT tagged as pattern day traders. However, the classification of a pattern day trader ALREADY exists and has for quite some time, correct? It is not something unique to this new SEC ruling that goes into effect on 8/28 for NYSE and 9/28 for NASDAQ.

    Thus, as I see it, all daytraders at IB should at this very moment be tagged as PDT's. Therefore, on August 28, NO MATTER WHAT, if these PDT's don't have 25k in their account, they lose margin until they deposit the required funds. No ifs, ands, or buts about it. They are currently PDTs!!! These traders are not going to get a chance to play around with the 3 rountrip rule, because they already ARE tagged as PDT's....or at least they should be if IB is following the rules.

    #33     Aug 16, 2001
  4. Your statement implies, that all traders trading with IB are daytraders - which is probably not the case.

    So IB has to make / announce rules for all of their customers - daytraders, swingtraders etc.
    It is possible that someone who would have fallen under the PDT description up to now changes his trading-style and becomes a multiday swingtrader - or the other way around peoples habits vary. The one who hasn't been a daytrader up to now, needs to know about what "qualifies" him as a PDT and which consequences this will have for his account. So IB needs to communicate a clear description of what a PDT is - and it uses the official description,even a bit more restrictive. - it's that easy.

    If a new customer opens an acount with IB, how could one say in advance he will become a PDT ?

    So for me, these are no "if's and when's" but a clear rule easy to understand for everyone trading with IB or for everyone considering to open an account with IB.

    If your account is sub 25K , do swingtrading or options or futures ( or maybe ETF's if they don't fall under this rule )

    #34     Aug 16, 2001
  5. Fohat



    Classification as a "pattern daytrader" will begin when the rules take effect, namely on Aug. 27 for NYSE and Sept.28 for Nasdaq. It does not exist (taken effect) yet.

    The first pattern daytraders will be "born" on Aug.27 after making 4 or more daytrades on NYSE.

    #35     Aug 16, 2001

  6. Actually, I was trying to imply that all daytraders trading with IB should be/will be PDTs based on trading records.....not all traders with IB are daytraders.

    #36     Aug 16, 2001
    #37     Aug 16, 2001
  8. The reason I bring all this up about PDT classification is because this has been on the Datek website for quite some time...Datek has been operating under these rules for lord knows how long....way before this new rule goes into effect later this month:

    Day Trading Margin Maintenance
    Day trading margin requirements

    A day trade occurs when you buy and sell the same stock during the same trading day. If you day trade three times in any one day or three times in any twelve-month period your account will be characterized as a day trading account. Therefore, your account is subject to the following day trading margin requirements whenever you execute a day trade.

    Is this just a Datek thing, or is this the way all retail brokerages operate? And if this is some sort of SEC regulation, then the pattern day trader designation has already been in existence for quite some time, as I thought.


    #38     Aug 16, 2001
  9. ktm


    I have a Datek account as well. I'm not sure where they came up with "3 day trades in a twelve month period", but they will likely lose a lot of customers because of this.

    They have a more complex system of "strikes" during a smaller 90 day window. Once you bump against a margin call...that can also now be initiated because of the 3 day clearing - so it gets tricky...AFTER you are declared a PDT, you must fill the PDT Margin Call with cash within 3-5 days. You may not sell stock to meet the call. If you fail to meet the call, you are given a strike. 3 strikes in a 90 day window and you get frozen for 90 days. In some ways, this is more lenient as long as you avoid a mrgin call.
    #39     Aug 16, 2001
  10. ktm,

    Exactly. So the Patter Day Trader classification already exists (at least at Datek, and I suspect everywhere else RegT is in force). If this is the case, then all daytraders currently trading should already be classified as PDTs and thus will be screwed come August 28 whether or not they violate the "3 in 5" rule....

    #40     Aug 16, 2001