Unfortunately I only get to make three round-trip trades next week. However, I am wondering about the specifics of this rule and how IB interprets it. If I purchase 100 shares of QQQ, and then add another 100 shares, and then add another 100 shares and then sell 300 shares, is that considered "1" round-trip daytrade? My system involves position phasing and I just can't do that very well with ES (I'm not trading two contracts on 5k -- no way). So, is this considered one of my three trades?
yes - 1 trade. Also - and this is big with IB - after you make your 3 daytrades with IB you will not be allowed to open a 4th position until either 5 days elapse from your first trade or you deposit funds to 25k. Some other brokers will not cut you off until you close that 4th daytrade; IB does it after 3, so if you're on your 3rd trade you better not close it out or your account will be frozen. I dropped below 25k last year (on the 3rd daytrade) by about 20 bucks and my account was locked until I depositied more funds. Remember not to mix timeframes. If you're on your 3rd daytrade best would be don't enter it at all; becuase if you enter on a daytrader's timeframe and can't exit you've got yourself a problem. Enter it as a swingtrade with a daily stop and you'll be better off. You can't enter on one timeframe and exit based on another and expect to be profitable in the long run. This whole PDT rule "designed to protect the small trader" - - -my ass! It forces people to either hold overnight or trade the futures, both of which are far more risky than daytrading a lousy 300 shares of QLGC.
I couldn't agree more. I guess this was designed to make the markets less volatile? However, if I have 5k-10k (whatever) and I want to lose it by trading QQQ, why should the SEC be concerned? This is supposed to be a free and open market for all. It is BS. If I'm locked out from exiting a trade, how can that ever be good?
TA, I think IBs logic behind the 3 daytrade limit is that it makes it impossible for any trader to be in violation of the PDT rule based when they happen to close the 4th trade. You will be able to close the 3rd daytrade OK without the additional funding. IB is preventing you from even starting a 4th daytrade. That is the one which will require additional funding. Because of that, there is no freezing of accounts, no emails for additional funding. I believe that once you cross the PDT line that account is forever PDT and must be funded with $25K or closed. It would really shock alot of people who accidentally make the 4th day trade that all of a suddent their account must be closed.
Puffy - That's what I was trying to say; the request for funding is not mandatory, unless you want to trade again before 5 days have passed. So really your actual daytrade limit is 2 since you don't want to take that 3rd trade because if you have to exit it then it's your last for a few days. What Harvey armPitt and Company should be doing is spending their time protecting the investing public against shams like ENE GX WCOM etc and leave use little fish alone., if they're really "protecting the small investor" as they say they are.
Aphex: I agree with you that this is just BS on the part of the SEC. It's absolutely ridiculous. Anyways, maybe single stock futures are the answer to this...well, ahhh unless the SEC comes up with another brilliant idea to apply the PDT to futures also!
It probably won't do much good, but I'm putting together a draft letter to send to the SEC and to my congressman. These BS rules do nobody any good. Perhaps some people want to dabble with 5-10k and trade a few hundred shares of an ETF before going all out with 25k. How long has this PDT rule been around?
These other brokers give you the benefit of the doubt because you are not *technically* in violation until you close your 4th day trade. Problem is that if you do close a 4th in 5 days you have a trading call and must send money. IB has an internal no-call policy where they always avoid a situation where they must request money from you. It was always this way in their margin department since before the PDT rule days where if you fall below margin requirements their "Big Brother" computer just liquidates positions automatically without issuing a call to give you the opportunity to send money, and without asking you which positions you want to liquidate. Gave me pause when I first read about that, but I came to accept it as something they had to do in order to make things as easy as possible for them while keeping commissions down....so I opened an account. It's all in keeping with their long-standing philosophies... --Derek