Info: Pattern Day Trading rule does not apply to cash accounts!

[nooby_mcnoob]

I just learned that the infamous "Pattern Day Trading (PDT)" rule (that limits the number of day trades for accounts < $25k) applies only to margin accounts, but not to cash accounts!

See also:

https://robinhood.com/us/en/support/articles/pattern-day-trading/
"Pattern day trading restrictions don’t apply to cash accounts. (They only apply to margin accounts, like Instant and Gold.) This means you can trade stocks, ETPs, and options without worrying about your number of day trades.
"

https://topratedfirms.com/trading/day/ameritrade-pattern-day-trade.aspx
"PDT rule does not apply to cash accounts. Therefore, TD Ameritrade allows unlimited number of day trades on cash accounts.
"

Just trade micros if you have $25K and have proved yourself in paper trading.

 

[mikeriley]

I think new traders will benefit from learning using a cash account... because it slows things down, and avoids leverage.

I think you mean IF they actually take the time to LEARN from
an actual formal trading or mentorship program. Having a
cash account is just a quick means to lose money as
a margin account.

90% of new traders, will blow 90% of their trading capital
within 90 days because they "think" they can learn on their
own how to become consistently profitable.

 

[earth_imperator]

Okay I'm all ears. How does one go about shorting a stock in a cash account? Always looking to learn something new. Most are extremely time sensitive and I'm not sure puts would address that fact,although I admit I dont trade options.

You can use a Long Put option instead. Options have an expiry date until which the option is valid, unlike stocks.

Long Call option is when going long, much like buying a stock.
Long Put option is when you think the underlying stock will fall, much like stock shorting.

These Call and Put options can also be shorted, then their meaning "reverses" (or "inverts").

 

[ElCubano]

But cant do any shorting in a cash account. Which reduces your money making potential by exactly 50 %.

'Which reduces your money making potential by exactly 50 % "<-------- I was referring to this statement.

On another note you can always short the market buy going long SH or PSQ.

 

[ElCubano]

I thought originally the PTD rule was made for protecting customers from their own stupidity and that they wouldn't try to daytrade with small account. RobinHood throw that idea out of the window.

This is correct. After the dot com disaster.

 

[guest_trader_1]

https://www.interactivebrokers.com.au/en/trading/marginRequirements/marginDayTradeFAQ.php#:~:text=FINRA has provided brokerage firms,ability to remove this flag.

PDT rules don't apply to Futures or Futures Options.
Apparently you can't trade Futures or Options with a cash account. I don't really know, I don't have one.
It looks like cash accounts will have it very difficult if not imposible to short a market.

 

[Overnight]

...
Apparently you can't trade Futures or Options with a cash account. I don't really know, I don't have one...

That's actually what you CAN do, because futures are inherently a leveraged with built-in margin. You don't get a "margin" account in futures because you already abide by margin requirements with your cash.

I believe there are more exotic and complicated account setups for futures accounts at full-service brokers, such as using Treasuries as collateral, but I am not sure on those bits.

 

[schizo]

You are correct. Anybody knows the reason why? Why limit one type but not the other?

...but as long as the brokerage has good risk control and don't let the customer go negative, why does it matter? After all they make more money if you trade more, so limiting your trades is counter productive to their profits. Also a bad trade can screw up all the account, it doesn't have to be daytrade.

Those with cash accounts are usually less sophisticated and undercapitalized, so the Fed led us to believe when it was implemented in 2000 (I can't recall the exact date) in the midst of market meltdown due to dot.com burst.

But the real reason for the PDT, along with short sale restriction and others like circuit breakers, is to stop short sellers from pummeling the market. That's all they are.

 

[tomkat22]

Trying to short stocks in a cash account sounds like a monkey trying to fuck a football.

 

[schizo]

https://www.interactivebrokers.com.au/en/trading/marginRequirements/marginDayTradeFAQ.php#:~:text=FINRA has provided brokerage firms,ability to remove this flag.

PDT rules don't apply to Futures or Futures Options.
Apparently you can't trade Futures or Options with a cash account. I don't really know, I don't have one.
It looks like cash accounts will have it very difficult if not imposible to short a market.

I'm pretty certain you need to have a margin account to trade futures. With options, you can only buy covered (??) calls or puts if you have a cash account. You just can't sell.