I'm still trying to figure out what the real reason for the regulation is and who is actually supposed to benefit from it. It's obviously not "to protect traders with small accounts" as many people claim. Small traders do not benefit from this at all. There must be someone else who benefits, who? If you really wanted to protect small, inexperienced traders who are trying to quit their day job, you would just prevent them from being able to leverage and prevent them from short selling. Those are the biggest reasons people lose their entire account and have to pay their broker. They are also the most prone to do risky things like bet double their account on some highly volatile penny, which they do because being conservative and smart with a small account only produces tiny gains, so in order to make any meaningful profit they need to go big. Of course, that fact alone combined with being able to leverage and short destroys their accounts. Add on top of that the fact that they can only revoke a trade three times per week and will often hold onto losers (a classic don't) lest they give up one of their treasured day trades, and you have a trader who can do little but bleed what little money they have until they dry up. On the other hand, if you simply prevented them from risky practices like leverage and allowed them to day trade, what would the worst that thing could happen? A bad trader simply trades until he runs out of money and quits, and a good trader makes small but steady gains. I doubt even a seasoned trader could significantly grow an account below 25k with the PDT Rule in place in a reasonable amount of time. Without PDT Rule, traders who are willing to improve contribute to the market and steadily grow both their account and their knowledge, while traders who are just in it to gamble or buy lotto tickets get strangled, but don't end up in debt. Instead, everyone who doesn't have 25k just sitting around basically has nothing to gain from trading and might as well just buy AMZN. I suspect the real reason has nothing to do with protecting anyone, and more to do with preventing Bob the burger flipper from discovering he's actually an amazing speculator and quitting his job at McD's to trade. Indeed if everyone could profit from trading no one would actually go to work for a fixed wage, and I think someone noticed this when the Y2K bubble happened and decided it would be best to prevent too many wannabe Wolves of Wall Street from just making an ETrade account and hitting it big. Did I hit the nail on the head?
Someone's mad they made 3 bad trades in a row in a margin account without enough equity to cover PDT. It's simple: FINRA makes the rules. They say if you have a margin account, you can't go firing trades willy-nilly without being capitalized enough to withstand the increased risk. Day trading has significantly higher risk than buying and holding, and thus in a margin account FINRA and the SEC require you to be more capitalized. Do you know what helps fly by night brokers? Low accounts and high margin. Go ahead and tell me day trading is "completely safe for small accounts". If you do, you clearly don't understand the fundamentals of risk management. You should read Reminiscences of a Stock Operator. When you have people liquidated because they blow out in two ticks it creates insane market volatility. Not good for anyone. If you place 1-2 trades a day, this gives you two trades to back out without going over the PDT rule. More to the point (from https://en.wikipedia.org/wiki/Pattern_day_trader): Even more to the point: Seems like there is flex if you can prove your strategy isn't a day trading strategy and you just got hit hard one day. I believe most brokers will just ban you from trading for a week or whatever if you tell them this. It's especially common with Robinhood from what I understand. PDT doesn't apply to non-margined accounts. Don't sign up for margin if you don't want to be held to the PDT rule. So I'm not even sure what you're arguing about. You could argue reducing the PDT rule requirements to maybe 15,000 - but thinking it's wrong altogether? Wow.
Yeah... I don't think the powers that be are remotely worried about a legion of burger flippers breaking free from the labor market if they could just make more than three trades a week. Not to be needlessly condescending but you've got a long way to go before you will be able to model reality accurately enough to have a chance at consistent success in the markets. I had the same advice given to me when I first came here years ago and I didn't understand it until much later. Here's to @Ghost_of_Blotto , hope the guy comes back some day.
The PDT rule exists because there were a lot of people that were ruined financially following the dot-com bubble. I agree with you. I've always thought that smaller accounts should have access to limited margin like retirement accounts. That way individuals would be able to trade their accounts freely, but they wouldn't be able to lose more money than what they have in their accounts.
Not true. Two in-and-out trades a day counts as four trades by the PDT rules, which goes over the limit, which, if I recall correctly from when I last traded stocks in 2010, is set at three trades every five days. Even if I'm remembering incorrectly about the in-and-out part, it would still mean making a maximum of only three round-trip trades a week...not one or two round-trip trades a day.
If you don't sign up for a margin account, it takes like three days for every one of your trades to clear, which means that day trading is no longer a real option, practically speaking.
Doubt that is the reason. In reality how it works is - Bob the burger flipper gambles away his last money, then sues the broker for allowing him to do so, then Bob's family starts blaming the government for not stepping in as Bob's children are now starving and can't go to school. Suddenly Bob's gambling addiction in the market is causing all sorts of problems. You're talking as if 90% make money in the market but the fact is 90% lose. Let me tell you it's not the guys making millions in NY who are likely to be in that 90% but the Bobs of this world.
It exists, because........ They know people with 25K+ accounts think there special and they blow it and walk away, never to trade again. And they know, millions of little poor people mainly over Yahoo Groups, where making a killing on small accounts and that added up massively, I know I was 1 of them Me and my 30 Yahoo Group mates, would literally all be millionaires Yahoo Groups got closes to stop people talking world wide to, BS, anti bullying or someone got offended so millions of people had to go without. It's supposed to be a free country, you are supposed to be responsible for your own actions, they shouldn't ban day trading to protect the few PDT made me go back to work
You can always trade the new Micro index futures. Tax treatment is much better than equities. No 25k needed.
Stocks where easier some how, multiple day swing trades but the plan to take profit day #1 why PDT Ruined. Futures = tight entries, tight SL's, huge moves, make for a hard game sadly. Amazing they didn't regulate Futures what with it being a harder game and a higher failure rate I'd bet. * Yahoo Groups still open, could of sworn PC brigade got rid of!