I guess my question is, and has been all along...why 25k? Why not 5, 10, 15, or 20k? What is the significance of 25K? 4 to 1 is 4 to 1... Guess it's over my head...or maybe the SEC answering a call to get rid of those damn pikers and their annoying 100 lot trades. I've said before, I don't believe the PDT has saved anyone's ass. I do know some folks who've lost everything in the market this year...and they weren't day traders...or even traders by definition. With the vix coming down, I'm soon going back into the e mini's. Won't care anymore, but the PDT has sure been a huge pain in my ass last 3 years or so. I am not convinced trading futures in a small account is less risky than trading etfs in a well funded PDT. And in fact I am certain that daytrading etfs in a an account the same size as an account required for futures would be less risky, at least for the disciplined, risk averse trader.
I've never used either ToS or IB although I wouldn't imagine ToS follows that rule because if I remember right Penson clears for them. Penson clears for two of my brokers that understand cash accounts are exempt from the PDT rule (to the extent of Reg T). Maybe this fact is irrelevant though, I do not know.
So HOW exactly does it follow that one can daytrade a cash account under $25,000? Somehow the Day trading in a cash account is generally prohibited. Tends to make me feel that Day trading in a cash account is generally prohibited. Just the way that I read Day trading in a cash account is generally prohibited.
You can read right? .. You know what the following sentence said ? Day trades can occur in a cash account only to the extent the trades do not violate the free-riding prohibition of Federal Reserve Board's Regulation T. It's not really feasible without margin to successfully daytrade stock because of T+3 which is what that paragraph is saying. What happens if you're trading something that settles in T+1 ? .. Oh like options. In that case it is very feasible and this stipulation on the rule makes a world of difference.
I have a well established set of rules. Because of market volatility, the smallest increment of the YM (1 contract) exceeded, and continues to exceed my risk. I can only control that risk by simply not trading that contract. -------------------------------------------------------------------------------- How do you arrive at that conclusion? What method did you use? One thing you are somewhat forced into when trading index futures is a concept called specialization. Since you'd only be trading one or two indicies, you develop systems that are tailored to the index taking into account its unique character and vagaries. That significantly reduces risk. You'll learn what type of stops to use and where they should be placed per setup. Your risk will be well defined and managed. Many futures traders, even some scalpers, use OCO (one cancels other) bracket orders. They predefine their exits and stops. First, thanks for your insights. I can tell you've been at it for awhile. I'm in 5 years, and 2008 was my first net profitable, and just. My system is very simple. Stops and targets are based on previous pivots in my selected time frame, and entries are based on TL breaks and retests, hopefully establishing new and higher/lower PP's. Even though the hoped for developing pivot will become my stop, by assuming so at entry often leads to a quick stop out, as I don't always wait for price BO's/BD's to enter, especially in larger time frames. It reduces my size by nature, but gives the play breathing room. I began trading the YM in Oct, as I simply needed to withdraw capital for home repairs. During the last several months, just 1 contract on a 1 minute time frame of the YM would require up to several hundred dollars of risk. That is beyond my current tolerance. I prefer larger time frames, as well, which put the YM risk well beyond my reach. This is resolved in an etf like the q's by reducing my size from 500 to 300, or 300 to 100 shares. My risk is based on a percentage of my total account size. -------------------------------------------------------------------------------- I can control my risk trading stocks and etf's, however, but I am limited by the PDT with my current funding. And here's how. I must trade a larger time frame to avoid triggering the rule too many times. That also means a bigger stop, which translates to smaller size, which translates to smaller profits (and losses of course)... and a lot more sitting around and waiting. I believe the PDT is all about risk, and as most gov actions, SEC or otherwise, misguided and miscalculated. From my current perspective, it robs me of opportunity...providing I don't change my rules...and we all know what happens when we violate our rules. -------------------------------------------------------------------------------- But, your rules need to be changed to compensate for the PDT if you wish to continue trading stocks. It won't be an easy thing, but since the rule isn't going away, it behooves one to adapt. Exactly what I have done by moving to the 60' and daily frames' off the 5 and 15', but unfortunately less size makes for smaller profits and introduces overnight risk in the etf I trade. A sacrifice. -------------------------------------------------------------------------------- What instrument do you recommend for intraday trading, given what I've just described? -------------------------------------------------------------------------------- Index futures. E-mini S&P 500 futures. Greatest thing since sliced bread I love the YM, and will resume when the risk in my favorite time frames comes back to my tolerance...sooner rather than later, I believe. Having said that, I like to scale, which is not really possible without a PDT on my etf plays, and not going to be possible until my account is large enough to trade several contracts at one time. Risk grows commensurate with my account size. Good luck with your trading, too!
Which it seems means we agree that one can really can not day trade without $25,000 in margin. This rule seems to be essentially to prevent PDTs from free riding, an artifact not necessarily of intent to game the system but of settlement system intervals required back in the 60s. Gosh: Think those new fangled computer things (which can now process a terabite per second) could be up to real time settlement?
I somewhat agree. My point was that you claimed (because of a website you referenced) that you HAD to be in a 25k+ margin account to continue trading past 3 trades in 5 days or you'd be labelled PDT and locked out from buying again. That is entirely incorrect. You've apparently changed your argument to say that you couldn't practically succeed unless you had 25k+ in a margin account, this is only mostly true. If you're only trading options than this is not correct at all. I'm sure there's probably some trading style someone uses with penny (literally .01 / .05) stocks that would make you able to do some profitable day trading in a cash account although I doubt the frequency of this occuring is very high. If they ever manage to finally change stock trades to T+1 then this all changes a bit more.
"Second of all, trade with stops. Even bracketed OCO stops and you'll be able to define your loss within a few ticks. So you won't have to worry about losing untold sums between breakeven and falling below maintenance margin. So if I traded emini's with stops placed, would the stops be on my broker's system or the exchange's? I thought, probably incorrectly, that my broker's system would have to execute the trade when my stop was hit and if their system was down, the stop would not be executed at the exchange.
That's a good question. Orders rest on CME's Globex's system and not your brokers. With OCO orders (one cancels the other) or brackets as some brokers call them, once one side gets executed (your target or your stop loss) and a fill report is received by your broker, your broker sends the cancel to Globex for the other order. Failure of their computers to do so would result in the other side of your order failing to cancel. The likelihood of such an event is extremely slim. A good broker with good system redundancy minimizes that risk to practically nil. Good news is that should that happen, that would clearly be their fault and they'd be inclined or compelled to recompense you for the loss.
"With OCO orders (one cancels the other) or brackets as some brokers call them, once one side gets executed (your target or your stop loss) and a fill report is received by your broker, your broker sends the cancel to Globex for the other order. Failure of their computers to do so would result in the other side of your order failing to cancel. The likelihood of such an event is extremely slim. A good broker with good system redundancy minimizes that risk to practically nil. Good news is that should that happen, that would clearly be their fault and they'd be inclined or compelled to recompense you for the loss." Well I know the time Interactive Broker's system went on the blink for a few hours for certain ETF's I happened to be long, they were pretty unsympathetic when I started whining about the $3000 I dropped. Their response was " Even the Nasdaq goes down sometimes". But it sounds as if I kept just a stop loss on the trade, that would be on the exchange's server and would have to be executed if hit. And if I kept it tight, I really couldn't get hit for a large loss if I or my broker had system problems. I would just manually exit the trade when it hit my exit point and cancel the stop loss.