I was not aware of this. Frankly, the PDT doesn't affect me and never has. However, I often thought it a shame that so many would-be traders take their $5k and piss it away trading emini's when it would be much better for them to open a commission free account such as Robinhood and learn to trade by trading a 10 lot, or even just one share of SPY or QQQ. So there is no 3 trade limit on a cash account, whatsoever?
ATTENTION: Ever affected by PDT Rule please contact me to join lawsuit and petition FINRA
- Thread starter iceman1
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I was not aware of this. Frankly, the PDT doesn't affect me and never has. However, I often thought it a shame that so many would-be traders take their $5k and piss it away trading emini's when it would be much better for them to open a commission free account such as Robinhood and learn to trade by trading a 10 lot, or even just one share of SPY or QQQ. So there is no 3 trade limit on a cash account, whatsoever?
Robert Morse
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- Only margin accounts are subject to PDT rules.
- Cash accounts do not recycle buying power with each Day trade. You have to wait until your trades settle.
The way you suffer damages by PTD is maxing out you day trade margin going long on something, having already responsibly used 2 day trades, and planning on picking up a protective put into close to to limit the losses on the long position and bringing margin into line. Then you out think yourself and flip "buy" to "sell" in your mind because you're shorting a bullish put spread and catch your mistake immediately after a fill and reverse your trade. Now you're settled cash restricted and forced to close a losing position that you could have turned into a winner and managed risk with a put.
But my other PDT problem illustrates the problem of showing damages...After thinking I'd left PDT concerns long behind, when moving an account I assumed (wrongly) that PDT rule was mandated by government and universally enforced...so I didn't realize that scaling out on two separate trades would ding me twice for PDT with the new broker, and rather than restrict you to cash like your old broker, new broker prevents you from opening any position until your account balance is back on sides...
But because the law only prohibits brokers from allowing traders to engage in certain transactions (not mandating the manner of compliance with the rule), the actual rule making and implementation for clients is left to individual brokers...against whom and claim for damages would be brought. But the defense of that is only that their procedures reasonably achieve compliance with the law. I'd expect the burden here would be that the broker was negligent in the implementation of the rule that disproportionately favored wealthier investors in a way that would not have occurred in the absence of the rule. Practically, this would mean showing not only the rule was negligently applied, but also proving to preponderance the trader's intent after becoming subject to PDT restrictions (being the basis for damages).
And the worst part of this is, you'd never have enough money to mount the case...you're looking for someone who is subject to PDT and going up against some of the largest and most legally sophisticated financial institutions out there. Even if you survive motions for summary dismissal, you'll be buried in discovery.
Also, you'd be in a situation where the broker would have to turn over evidence of the damages to be used against them in the form of orders they rejected at a website / platform level before a third party was ever involved. I'm not sure about records laws applying to this, but I have first hand knowledge of company records deletion policies that are primarily concerned with limiting liability in the event you're subpoenaed.
Which isn't to say I don't support a repeal of the PDT rule...I just don't see a way to do it through litigation.
But my other PDT problem illustrates the problem of showing damages...After thinking I'd left PDT concerns long behind, when moving an account I assumed (wrongly) that PDT rule was mandated by government and universally enforced...so I didn't realize that scaling out on two separate trades would ding me twice for PDT with the new broker, and rather than restrict you to cash like your old broker, new broker prevents you from opening any position until your account balance is back on sides...
But because the law only prohibits brokers from allowing traders to engage in certain transactions (not mandating the manner of compliance with the rule), the actual rule making and implementation for clients is left to individual brokers...against whom and claim for damages would be brought. But the defense of that is only that their procedures reasonably achieve compliance with the law. I'd expect the burden here would be that the broker was negligent in the implementation of the rule that disproportionately favored wealthier investors in a way that would not have occurred in the absence of the rule. Practically, this would mean showing not only the rule was negligently applied, but also proving to preponderance the trader's intent after becoming subject to PDT restrictions (being the basis for damages).
And the worst part of this is, you'd never have enough money to mount the case...you're looking for someone who is subject to PDT and going up against some of the largest and most legally sophisticated financial institutions out there. Even if you survive motions for summary dismissal, you'll be buried in discovery.
Also, you'd be in a situation where the broker would have to turn over evidence of the damages to be used against them in the form of orders they rejected at a website / platform level before a third party was ever involved. I'm not sure about records laws applying to this, but I have first hand knowledge of company records deletion policies that are primarily concerned with limiting liability in the event you're subpoenaed.
Which isn't to say I don't support a repeal of the PDT rule...I just don't see a way to do it through litigation.
What the hell does what you posted (hereinabove) have to do with whether a trader has 24,999 or 25,001 in their account OR for that matter, $500,000?!! Any size can blow out. Lehman went under and so did Bears Stearns. So did traders with multi-million dollar accounts. THAT IS NOT THE ISSUE here, Mav74. Good thing you did not go to law school or medical school as you might have flunked out.
The "blame" IS ON THE RULE. The rule damages and negatively harms traders. Period. That's a fact. What is the difference between $24,500 in an account and $25,001 IF both traders have been given approval for margin trading at the highest level?! If the broker DOES NOT want to approve them, fine. That's their discretion within limits. However we do not need and never ever needed a PDT rule to supplement other pre-existing margin regs. You get that?
Have you ever heard of the concept of relevance! It is more than a legal word. It means IF you are going to oppose a concept or thought or idea -anwhere- with -anyone- THEN AT LEAST be able to do so with commentary, opinion and/or examples that are RELEVANT!! Your comments continue to demonstrate a complete and utter ignorance of the isssue(s) involved.
Sorry bro I can't waste any more time debating with minds that have no idea of how to use relevant reasoning and examples, to debate a point in dispute. When I file this litigation and you read same, then watch it unfold, perhaps you might finally get it.
I have found A LOT of people willing to serve as plaintiffs who have been f-ked over by this Rule. So now I'm going to finish drafting my Complaint at Law; and take other appropriate action against this capricious and unconstitutional Rule. Soon.
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PDT is there to help the unsophisticated and the not so wealthy. It helps them not hurts. Your lawsuit if frivolous.
I always thought the PDT rule is discriminatory. I am glad FINALLY somebody caught on and has decided to do something about it. People's trading style shouldn't be limited or dictated by the amount of his/her capital and it's none of the government's business to has any saying in it. I agree with that it is in the Constitution that everybody has the right for the Pursuit of his/her own Happiness and if somebody believes daytrading is his/her venue to pursuing his/her happiness, what right does the government to say it is not allowed just because his/her capital is not as large as Warren Buffett?
And how is that threshold number $25K decided? Why not $10K? Why not $35K? Why EXACTLY $25K? Not $24999,99K? Ridiculous!! I want to see scientific backing and researching find, calculation formulas behind how they decided that $25K threshold number.
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If you are going to borrow someone else's capital, you have to play by their rules. You understand that right? It's not YOUR money, it's theirs. That's the issue. You can't dictate what you can do if you are using someone else's funds. If it's your money, do whatever you want, burn it if you like.
Then it should be the broker who should decide how much the min. capital that it requires from its clients which I understand could be for protection of their funds. And if I don't like it, I can just go to another broker. But what's that of the business of the government??!! WHY is that the government's business of setting that min. capital amount just for a particular trading style? I am not borrowing the government's money??! This potential class-action lawsuit is not suing the brokers; it's suing FINRA.
Because the gov't DOES bailout the broker via FDIC or SIPC insurance.
I guess no one is arguing that small accounts blow up more than large accounts. That’s to me some scientific evidence to impose a minimum PDT account size to protect both account owners and brokers. I would think it protects the not too wealthy more. One can always try and train using a sim account.
As to what the minimum PDT account size should be, that’s another topic.
As to what the minimum PDT account size should be, that’s another topic.