New Daytrading rule in September 01'

This message is for the people who don't think they'll be affected by this rule, folks with 25K account plus.

For all you daytraders over there, how do we all make money?
Isn't volatility most important?
Isn't this the main thing that will be eliminated?
Any thoughts on that? So far I haven't got any decent reply on how markets will be affected. Any thoughts would be appreciated...

Bob
 
wet,
maybe i'm not clear on what you're stating. please restate if possible. IB is very much against the new rules and I would think that rules will be enforced only to the extent that they have to. (i.e. not impose additional restrictions.)

Yoda,
I mentioned earlier that I personally think the new rules will be a boon to the individual stock futures markets when they are legalized to trade in the US. The rule does not apply to commodities and margin treatment will be more beneficial to the less capitalized traders.
 
Def,

As far as I understand it, here's the SEC rule:

SEC: if you have >25K, you cannot make more than 3 intraday entry/exit trades in a 5 day moving period.

IB: if you have >25, you cannot OPEN more than 3 positions in a 5 day moving period.

Here's an example:

I open 3 trades on Monday. I am not stopped out of them that day, so the next day I open 3 more.

According to the SEC rule, this is OK. According to IB's rule, it is not. According to IB (as I read it) I cannot open ANY new trades until the following Monday.

I may be reading IB's solution wrong. I hope I am. But if I'm not, then IB has made a bad situation far worse.

Wet

 
Def,
I think I have the same question as Wet. It seems that those people who do not daytrade but have less than 25K in their accounts will also be restricted to 3 trades in every 5 days (even though they are not daytraders). This seems cotrary to the spirit and letter of the SEC ruling. Thanks.
 
Like I said this IB statement must be a mistake, it's an excerpt of an email to IB mgmt, maybe it's edited... Not being able to open more than 3 positions in a five day period, that's nonsense. Every account under 25K would just be closed if it was the case. Can't open 3 positions in 5 day?! Give me a break!
 
Yoda,

My concerns are about liquidity.

I generally trade stocks with average daily volume of over 1,000,000 shares, but not the extreme high volume stocks like DELL, CSCO, MSFT, etc. I prefer to be able to trade a stock that is somewhat readable for the short term with enough volume so that it is liquid, but not so much that the price won't move far very fast. Most of my trades only last about 7 minutes, though others, such as trending plays may last for most of the day.

When I place an order to trade 1,000 shares, most often, the order does NOT trade in one segment of 1,000 shares, but rather in multiple smaller segments such as 500, 300 and 200 or something like that. I primarily use REDI, ARCA and ISLD. (ISLD orders are most often in many pieces.)

My concern is that perhaps the traders on the opposite side of my orders are often from those with less than 25K, and they may disappear from the market because of the new 25K rule. I assume this since most often it appears to take several other smaller traders orders to match my 1,000 share order. I hope I'm wrong, but I see this as a disadvantage to the more professional daytraders if liquidity dries up.

If the statistics are true that about 90% of daytraders fail, and a large portion of those 90% disappear from the market because of the 25K rule, then many of us may be affected adversely unless you want to scalp for penneys on the high volume stocks, accept poorer entry price, or hold for longer time periods. I don't think that general stock price fluctuations will change, but I suspect that entry and exit will be more difficult if liquitidy dries up.

I guess we'll find out soon, but I hope I'm wrong.

TimWin
 
wet et al,
I agree with your concerns and assume the logic of the posting under the mgmt response on the website was incorrect. I'll look into it (it may take me a day or two to respond).
 
I wouldn't think that IB could be imposing this rule AFTER someone has been declared a pattern daytrader because the restriction is less restrictive than the SEC remedy. I too await Def's answer before I open an account with them. I have used Datek and Brown for most of my trading. I didn't read all the way back in this thread (so I don't know if it's been mentioned here) but Datek has issued a release that 3 round trips in a year period would be declared a pattern daytrader. I still can't believe this and will likely close my account there.

I was growing frustrated with partial fills from Datek and they have yet to incorporate legitimate options trading. Brown is implementing the rule as written...4 round trips in a 5 day period and you keep the daytrader moniker for 90 days. Am I mistaken about Datek? Am I to understand that above 25K, there are essentially no (NEW) restrictions whatsoever and the margin is upped to 4x?

Thanks
 
Def, if one trades the 4th time in 5 days and the last trade returns the accout to 100% cash, can the "offender" request that account be closed and will IB issue a check for the account at that time?

Or will IB hold the cash for 90 days?
 
The possibility of a class action suit is mentioned in at least two posts on this thread. That got my attention because I expect to be negatively impacted by this new SEC rule -- my cash trading account is under $25,000. Can someone explain who would be sued in a class action suit? It seems like the SEC would be the primary target, but can someone sue the SEC, or is it exempt because it is a federal government agency?

I usually am not interested in suing, but I think writing to Congressmen and appealing to the SEC will do little, if any, good. Don't think it will hurt, but unless there is a massive, coordinated effort, I think letters will largely go unheeded.

Fast

 
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