Repeal of PDT Rule 4210 - Join Me (part 1)

Discussion in 'Trading' started by iceman1, Nov 21, 2011.

  1. I have for quite some time wanted to challenge the PDT Rule.

    In my humble opinion it's just another quintessential example of government over-regulation; sticking noses into individuals private financial business and decisions. We are at a time when, finally, we might get some movement on reducing the absurd, insane and unnecessary amount of regulations, laws, rules, statutes, ordinances, codes ad nauseum that we all have to suffer and deal with in the USA. This Rule was enacted by SEC at the behest of the honorable people at NASD/FINRA apparently responding to the NAZ bubble bursting. As stated it is yet another in the litany of examples of government telling us how we must live, how we must invest, how we conduct our lives. We don't see government requiring casinos and sellers of lottery tickets to screen customers before allowing them to blow large sums of money at a crap table, or restricting the purchase of Lottery tickets. So far as I know, there are no barriers to entry into any casino in the United States.

    What is particularly annoying about this Rule is that it includes option trades in computing the pattern day trading violations. This is patently absurd. It shows how uninformed lawmakers and bureaucrats pass laws or enact regulations that fail to accomplish stated goals. Now if one's account draw down from $50,000 to $24,999 at that moment their broker is required to not allow them to purchase puts, sell covered calls or otherwise protect their account and/or repair option positions. I have seen many, many terrible laws, rules and regulations since law school. Bad law, like bad court-decisions, emanate from uninformed, unimaginative, and often not very smart, people being given unbridled power to make decisions over citizens lives.

    Why does $25,000 constitute a magic number whereby a trader/investor can then trade multiple times a day regardless of experience, training or understanding of risk, while a much more experienced trader with a smaller account is restricted.

    Apparently back in 2001 SEC and the honorable people at FINRA decided smaller traders should not be given opportunity to trade their way to success with a grubstake less than 25k. Many companies listed on the exchanges would not be here if they were not allowed to take the shot; to take some small grubstake and open a business in a garage without onerous restrictions. Yet in the financial markets one is hampered in seeking income and capital appreciation by reason of having to raise a certain amount of capital to trade without artificial and meaningless limitations. Of course the SEC has no problem with individuals trading an infinite number of times in futures markets with much less than 25,000. This duplicitous scenario discredits PDT Rule 4210.

    As I understand the history of Rule it was allegedly to protect traders from blowing up their accounts by over-trading on an intra-day basis. Of course you can still “over-trade” but SEC forces the smaller trader to incur risks of overnight option and equity positions while having no problem allowing unlimited futures trades, with impunity.

    This Rule must be repealed or significantly amended.

    At minimum the inclusion of options in computing day trades must be removed. You can trade futures an infinitesimal number of times at most brokers like IB (on margin) with a much smaller sum (i.e. 10,000) and trade futures without margin with as little as $2,000 ( I believe). But you cannot buy protective puts or sell calls on any account with 24,999 after designation as a PDT!!

    I have talked with with some Congressmen, and intend to seek their support. I will forward the SEC Petition and my letter advocating repeal of PDT to the Subcommittee on Capital Markets and Government Sponsored Enterprises, and the Banking, Housing & Urban Affairs Committee.

    I have been a civil trial and litigation attorney for 28 years and have handled numerous large and complex civil, corporate, business, chancery and tort litigation matters involving millions of dollars. I was a partner in a well-known Chicago law firm. I was successful. I care about people, and about the public interest. The public interest is not liberal or conservative, in my view. Back in the 90s I took a sabbatical from Law and for several years spent time trading larger accounts; I passed Series 7. When I returned this Summer I chose not to risk a large amount of capital since I do not consider myself a market wizard, and my prior experience taught me the risks of the markets; how one or two crucial mistakes of timing and/or money management can result in destruction. I think it's fair to say I have been a damn good attorney as borne out by my success in complex litigation; but so far as trading I cannot yet claim the same miraculous results.

    The PDT Rule impacted my account, like many others. I added funds to avoid the impact of this inane Rule and sure enough this merely placed more capital at risk to large price swings, and mistakes or bad timing . If you're suckered one or two times too many you can draw down your account precipitously. Moreover if I now wanted to open several more accounts for less than 25,000 each, it would mean I would be restricted by this rule and limited in trades. One hand would be tied behind my back.
  2. make that:

    an "infinite" number of times
  3. more power to you. The pattern day trade rule is ridiculous. I as well as many others would love to see this stupid law go away.
  4. hitnrun


    the rule has been around for 10 years. crazy rule

    even with options calls/puts which are purchased in cash

    if you have a larger account then we will give you more margin to bury yourself
    money with stupidity does not protect anyone

    this is one rule that should be changed then you will have volume come back into the market
  5. They should raise PDT to $100k and Portfolio Margin to $1M.

    What percentage of traders make it vs. don't make it.

    Should be cash to $25k or even $50k and then 2:1 up to $100k and then 4:1 to $1M when you can have your 6.6 or 6.7:1 with PM.

    Getting rid of the PDT rule will only increase the failure rate of traders.

  6. Actually your wrong, Before I had enough money in my acct. to trade all the time if I had a loss I had to wait sometimes 4 days before I could try to make it up. Now if I have a loss, I can make it up in minutes and continue on my way. The PDT rule ACTUALLY helps you to lose by not letting you try and make up what you lost unless you hold overnight which is ridiculous.

    I say get rid of it too although it doesnt effect me any more as I have enough in my daytrade. If you daytrade, the rule is ridiculous
  7. hitnrun


    with all these rules is why prop firms have flourished over the years

    they should change margin to 10-1 daytrading only for 50k accounts

    the daytrading margin is to low for traders
  8. I have no problem with the rule.

    Let it stay.

    If anything, tighten it up - no margin at all for any account under 100k.
  9. mikeenday

    mikeenday Guest

    actually why not do swing trade instead?
    It forces you to only take limited number of trades, and it helps you to focus on the best setup. And be more patient.

  10. Bob111


    looks like it is too hard to understand for some folks here....we need fresh meat..the more,the better...we need compulsive players,gamblers, know..retail..$1-5K minimum for stock trading on margin should be more than enough..
    #10     Nov 21, 2011