Blocked from trading by 'Pattern Day Trader' restriction...

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Xenomorph

Recently I was labeled a pattern day trader. "No big deal." I thought. I am not a day trader but sometimes I trade intraday. It just depends. As long as you have enough funds in your account this should not be a problem right? Boy was I wrong.

What happened
Thursday I bought 1,000 shares of stock XYZ. I used most of my account balance to buy the shares. I paid cash. I did not borrow on margin. After buying the shares I owned the 1,000 shares and had a few bucks in cash left over. I did not own any other position. I was planning to hold a week or two. Friday morning the stock gaped up. I'd been watching this stock for months and felt the odds were high that the gap would close later in the day, so I sold at the open Friday morning. Sure enough, later on Friday the gap was filled. I attempted to buy back the 1,000 shares on Friday when... BAM!! DENIED.

"We cannot accept this order because there are insufficient funds in your account."

What my broker told me
A pattern day trader needs to trade intraday to avoid this restriction. If a pattern day trader holds overnight my position is considered something else (a 'normal' trade I guess) and falls under the T+3 rule which states that if I sell the shares the next day, I must wait 3 days to buy back the shares I sold. This restriction is followed by all US brokers and applies to all equity (stock) traders.

Aftermath
I am a bit shaken. I have been trading a long time. More years than I care to count. But this is the very first time I have run into this restriction. Maybe it was sheer chance that I did not encounter this restriction before. It defies belief that I have not heard about this before, but I have not. The trading system I have been working on will not work with this restriction. Now I am confused and worried.

Questions
Am I taking crazy pills? Is my broker telling the truth? Is this restriction for real? Is there a clear explanation of this restriction on the web? Why would anyone trade equities with restrictions like this? Will moving to a 24 hour market like futures or forex be a good idea for a guy like me who trades both intraday and overnight?

I could really use some good advice on this problem. Thanks in advance.

Xenomoprh
 
You have to have a minimum of 25k in your account to do more than 4 day trades every 5 business days. This is a stupid rule that applies to equities.
 
badnewsbear said:
You have to have a minimum of 25k in your account to do more than 4 day trades every 5 business days. This is a stupid rule that applies to equities.
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Thanks. I do understand that requirement and my account exceeds that requirement.
 
Xenomorph said:
I sold at the open Friday morning. Sure enough, later on Friday the gap was filled. I attempted to buy back the 1,000 shares on Friday when... BAM!! DENIED.

"We cannot accept this order because there are insufficient funds in your account."
More...

Did you already have 3 day trades during the last 5 business days?

If not I think the problem is that your account wasn't credited with the sale of the stock unit the end of the day. So you did not have the funds to buy back the stock.
 
FXforex said:
Did you already have 3 day trades during the last 5 business days?

If not I think the problem is that your account wasn't credited with the sale of the stock unit the end of the day. So you did not have the funds to buy the stock.
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I did have more than 3 trades within the last 5 business days and I have been labeled a pattern day trader for about 2 months now. I was told that if you are a day trader and you hold overnight then sell... you cannot buy back those shares later that day. Something to do with the time of day that brokers calculate account balances. If the trade is a day trade only (intraday) the calculation is done immediately. If the trade was held overnight, the calculation will not be done until market close. This is so freaking confusing.
 
Xenomorph said:
... Something to do with the time of day that brokers calculate account balances....
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I'm certain that it was at the end of the day. And that's why you had "insufficient funds in your account".

Xenomorph said:
... If the trade is a day trade only (intraday) the calculation is done immediately.....
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Are you sure?
 
You are better off trading index futures. Futures have the 60/40 tax rule, where you can claim 60% of your profits as long-term and pay less in taxes.

You won't have to deal with this pattern day trader non-sense. You can get stopped out if you your position loses too much, because futures are leveraged.
 
badnewsbear said:
You are better off trading index futures. Futures have the 60/40 tax rule, where you can claim 60% of your profits as long-term and pay less in taxes.

You won't have to deal with this pattern day trader non-sense. You can get stopped out if you your position loses too much, because futures are leveraged.
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Thanks. I'll keep that in mind. Good advice. I'm really confused about the so called T+3 rule (or whatever the restriction is called) about not being able to quickly buy back a stock you sold that morning if you happened to have held it over night prior to selling it that morning. I've just never heard of this before and I've been trading a long time.
 
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