Pattern Day Trading Loophole??

Discussion in 'Trading' started by learn&earn, Jul 3, 2008.

  1. Recently i met another trader through a mutual friend and as our conversation progessed i learned that he sells motorcycles and trades at work. He also said he trades equities everyday with around 10K, so i asked him how he gets around "pattern day trader status". He said he trades in two accounts with 5k in each. That way he can execute 3 "day trades" per account. I thought this was very clever but not sure if it's legal. any thoughts?


    http://www.investopedia.com/terms/p/patterndaytrader.asp
     
  2. RhinoGG

    RhinoGG Guest

    vee have vaayys
     
  3. Surdo

    Surdo

    Ever hear of futures?
     
  4. Kanzei

    Kanzei

    doesn't the pattern day trader rule only apply to leveraged accounts anyway?
     
  5. futures are what i recommended. He is leveraged in both accounts. He said he has been doing it for over a year so i guess they are letting the gray area play.
     
  6. Surdo

    Surdo

    It applies to any equities account. Once you get "flagged" as a pattern daytrader, you need to maintain $25K in the account.

    "Basic pattern day trader rule summary:

    An NASD & SEC rule that applies to anyone who buys and sells a particular security in the same trading day (day trades), and does this four or more times in any five consecutive business day period. A pattern day trader is subject to special rules. The main rule is that in order to engage in pattern day trading you must maintain an equity balance of at least $25,000 in a margin account."



    http://www.patterndaytraderrule.com/nasdrule2520.html
     
  7. The whole PDT thing is automated at Interactive Brokers and you can actually see the counts as you make trades. Once it counts down to 0, you simply can't open any more trades until enough time has elapsed.

    I solved that problem by dumping more money in the account.
     
  8. Kanzei

    Kanzei

    the key words in that quote being "in a MARGINED account".

    I'm confused by your post. you said it applies to all accounts, but your quote says it applies to "margined" accounts.
     
  9. Surdo

    Surdo

    If you trade 4 or more times in five business days, you will be restricted to closing transactions only, this applies to ANY account with less than $25K.

    Not exactly a new phenomenon bro... read the link I posted earlier for details...or GOOGLE NASD Rule 2520.

    Why not trade e mini's and avoid this dumb rule?

    el surdo
     
  10. It has to be a margin account for it to be turned into a PDT account. Cash accounts stop you by making you wait 3 days for the trade to settle before you can use that capital for another trade. In a regular 2:1 margin account you don't have to wait 3 days for the trade to settle, so you can use the capital again once you get out of a trade. But if you do too many trades in a regular margin account and there is less than $25k then the account gets restricted or turned into a PDT account if there is more than $25k in it.
     
    #10     Jul 3, 2008