Pattern Daytrading poll

[hii a_ooiioo_a]

Quote from Rigel:
The purpose of the rule, is not to protect the trader, it is to protect the clearing firms. It may or may not be the "real" reason for the rule.

"Although the day trader may end the day with no position, the day trader’s clearing firm is at risk during the day if credit is extended. To address this risk, the NASD and NYSE require day traders to demonstrate that they have the ability to meet the initial margin requirements for at least their largest open position during the day."

As qdz has stated, the purchase of long options is non-marginable, comes out of cash. Buying options does not put the clearing firm at risk, since it is paid upfront in cash. No margin is involved. No money is borrowed by the trader from the broker.

If they want to say that buying options from a margin account will deduct from the margin value of the account, thus possibly restricting the daytrading of stocks if the margin value falls below $25,000, that would at least make sense. But to subject the cash-purchased options themselves to the three trade restriction is not logical. The brokers are not put at risk by the options trades.

Whereas, increasing the intraday margin to 4:1, which is what they have done, does put the broker at risk, much greater risk than before when it was "only" 2:1.

This is why these rules are illogical. They achieve the opposite of what they claim to be designed to do.

 

[hii a_ooiioo_a]

Great idea! Why cannot a broker put up some frozen fund/equity in the account for us? That's a very encouraging step as cooperation with clients who kindly pay commissions as much as they can. This gives NASD/SEC no excuse.

That's truly kind of you TM_Direct to offer, and qdz's extension of the idea as well as vladiator's original suggestion all add up to a very good plan.

If a daytrading partnership were formed, with a frozen base asset of $25,000, then members could contribute their amount of money to the account, and be free to daytrade from that account.

What I can't quite work out, though, is how you would make sure each member would only use his own share, and not put the rest of the members' portion of the account at risk. I also can't quite figure how they could all use the account at the same time. I know that with InteractiveBrokers you can only be logged into the account from one location at a time.

 

[qdz]

Quote from hii a_ooiioo_a:

That's truly kind of you TM_Direct to offer, and qdz's extension of the idea as well as vladiator's original suggestion all add up to a very good plan.

Heheh, this is one of qdz nobrainer thoughts. I mean the broker backs up one account for one customer at a time. They can use what ever equity available, like street name assets. The only condition is that the broker need to make sure that they have the capabilities/measures to prevent the customer to put them into risks. In this way, NASD rules is in toilet. Brokers do what they feel comfortable to do, collecting easy commissions. Small traders continue day trades. And we live happily thereafter.

Yes, this is a great idea. Good show, qdz. But I doubt no well-known broker will ever do this.

 

[hii a_ooiioo_a]

It's kind of like creating a prop-firm. That's how they do it when they hire traders at the prop-firms and they can daytrade with exemption from the rule because they're trading from the firm's collective base assets of over $25,000.

 

[qdz]

Hii, I just want to trade the portion of my own money. So it does matter how much a broker put up for me. I only care I can go in and out markets with my own funds.

 

[qdz]

159 votes out of 14K+ members. Hello , folks. Let's vote. There is no ballot problem.

 

[vladiator]

Quote from hii a_ooiioo_a:


What I can't quite work out, though, is how you would make sure each member would only use his own share, and not put the rest of the members' portion of the account at risk. I also can't quite figure how they could all use the account at the same time. I know that with InteractiveBrokers you can only be logged into the account from one location at a time.

You can have those restrictions legally stipulated in the LLC operating agreement. Also, starting the venture with those you can trust should help... To use the same account at the same time you will have to pay for several terminals. I'm sure you could work things out with the broker if you really wanted.
Or how about this, you take turns and one trades for one week then the other etc

 

[qdz]

Quote from vladiator:



Or how about this, you take turns and one trades for one week then the other etc

Good solution but a lot of negotiation work to do with no guarantee. Thanks

 

[TM_Direct]

QDZ. Hi io

By the way...are you guys registered? If the Borker -dealer puts up capital for you to trade, you will need the series 7 and 55....I just thought I'd give you one more hurdle to climb

 

[hii a_ooiioo_a]

You see, the problems, and the basis of at least my complaint about these rules, have to do with the definitions of the words "daytrader" and "risk".

I'm not a daytrader, if daytrader means someone making dozens or hundreds of trades a day. We usually think of the daytraders as people doing that, and taking exaggerated risks by using margin to leverage their trading activities.

I don't use margin. I don't borrow from the broker. I don't put the broker at risk by using their money as leverage for a frenzy of scalping trades day after day.

I just buy a few options contracts on one or two stocks at a time. Many days I don't trade at all.

So the question is, where did they get this arbitrary 3 per 5 days number?

If I want to buy options on a single stock, once a day, and have the freedom to sell those options before the market closes, risking only the amount that I am comfortable with according to my own means, and all of it is paid upfront in cash, nothing owed to the broker, same day cash settlement, why shouldn't I be able to do that? Why must I be labelled a "daytrader" and be subjected to rules designed to restrict a much more feverish form of trading activity.

If they wanted to say anyone doing more than three roundtrip "daytrades" per day would be classified as daytrader, I could accept that. I could accept that anyone doing more than 3 roundtrips per day was engaging in a fulltime ongoing trading activity.

But three per 5 days? It's just ridiculous, especially when applied to the non-margined stock options.