Pattern Daytrading Rule , with Multiple brokers ?

T

TradeTune

Hi,

1- If you have 25K+ with a broker , Do you have to be Margin account or cash account?

2-If samse account your total securities and cash , value falls below 25K. Do you have to find your account to bring it back to 25K+ ?

3-if someone don't have 25K, and tries to open account with 4 brokerage each 5K, and he places "3 or 4 trades? " a week with each broker, Does he still falls under PDT rule? can he do that or is it a problem ?

4- Is it Three or Four "each side" trade or "round trade" a week ? it's not clear how many trades per week you can do !


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If you have 25K+ with a broker , Do you have to be Margin account or cash account?

The broker will not require you to have a margin account. But if you choose to have a cash account, it will severely limit what you can do. With a cash account, you can only place orders with settled funds. So you can't recycle money from stock that you sold that day, because the sale of the stock has not yet settled. With a cash account, you really can't day trade stocks in any meaningful way. And you cannot sell stock short. And most brokers will not let you trade spreads in a cash account.

If samse account your total securities and cash , value falls below 25K. Do you have to find your account to bring it back to 25K+ ?

Yes. According to the day trading rules,

"If the account falls below the $25,000 requirement, the pattern day trader will not be permitted to day trade until the account is restored to the $25,000 minimum equity level."

if someone don't have 25K, and tries to open account with 4 brokerage each 5K, and he places "4 trades" a week with each broker, Does he still falls under PDT rule? can he do that or is it a problem ?

The PDT rules apply to each account separately, and the brokers don't share information with each other. So the number of trades in each account will not be added together for a cumulative total.

However, your reference to "4 trades a week" suggests that you may be misinterpreting the PDT rules. The definition of a pattern day trader is

"any margin customer that day trades (buys then sells or sells short then buys the same security on the same day) four or more times in five business days, provided the number of day trades are more than six percent of the customer's total trading activity for that same five-day period."

So to avoid being designated as a pattern day trader, you have to have less than four day trades in any period of five business days.

You can't have "4 trades a week." That will get you classified as a pattern day trader. You can't have "four or more." If you want to avoid the PDT rules, you have to have less than four. That means you can only have three day trades (or less) in any period of five business days.

And be careful with the meaning of "a week." A week is not Monday through Friday. The rules say five business days, and they do not have to be continuous.

If have two day trades on Friday, and two day trades on Monday, you have a total of four day trades in a period of only two business days. And that will trigger the PDT rules.

If you have a cash account, the PDT rules are not applicable, so in theory you could do all the day trading you want in a cash account, without triggering the rules. But as I said earlier, in a cash account, you can't place orders with unsettled funds, and this will severely limit what you can do with stock. If you are trading low-priced options or something, you could conceivably have dozens or even hundreds of day trades in a cash account without any problem. But in a cash account, at most brokers, you can't trade spreads. So you would be limited to simply long calls and long puts.

You can read a summary of the rules here:

https://www.finra.org/investors/lea...ng/day-trading-margin-requirements-know-rules

BMK

 
TradeTune wrote:
Is it Three or Four "each side" trade or "round trade" a week?

According to the FINRA rules, which I cited in my previous answer, a "day trade" occurs when a margin customer

"buys then sells or sells short then buys the same security on the same day four or more times in five business days, provided the number of day trades are more than six percent of the customer's total trading activity for that same five-day period."

So if you buy a stock at 10:00 AM and then sell it at 2:00 PM the same day, that is one trade (not two).

And just a couple more observations:

(1) "Round trade" is not a term that most people are going to be familiar with. I think you meant to say "round trip."

(2) You should stop using the phrase "three or four." It's not three OR four. If you do three day trades (or less) within a period of five business days, that will not trigger the PDT rules. If you do four day trades (or more) within a period of five business days, that will trigger the PDT rules. So you should be very clear about whether you are talking about three trades or four trades. It's one or the other; it's not both at the same time. Three and four have very different consequences.

(3) You should stop using the term week. As I said in my previous response, it implies that you could do three day trades on Wednesday, August 19, and then do three more day trades on Monday, August 24, without triggering the PDT rules, because the trades on Monday were not "in the same week." This is not how the rule works. This pattern will trigger the PDT rules, because you have six day trades within five consecutive business days. The weekend does not restart the five day period.

(4) If you edit your original post after someone has responded, you should make an effort to clearly document the changes to the text of your original post, by explaining what you changed. If you make significant changes to your original post without explaining the changes, it can have unintended consequences. The response that was posted before the changes may look goofy, because it is answering your original question, and not the edited text. In some cases, the previous reply may have been correct with respect to your original post, but is now wrong with respect to the edited text. Even if it is unintentional, this has the effect of making the response look bad, and that's not fair to the person who wrote it.

Editing your post after someone has responded, without clearly documenting what you have changed, is poor etiquette.

BMK

 
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Looking at the time stamps in this thread, it appears that TradeTune and I were typing at the same time. He was editing his original post at the same time that I was writing my response. I could not see the changes he was making, and he was not aware that someone had responded, because my response had not appeared yet.

I would also like to clarify that the text of the FINRA rules does not contain the phase "consecutive business days," or "continuous business days." It only refers to "five business days," or the "five-day period." My use of these terms was a poor choice of words.

Consecutive and continuous are very ambiguous in this context, and that is probably why they are not used in the text of the rule. Thursday, Friday, Monday: Is that three consecutive business days? Well, if Saturday and Sunday "don't count," then you have three business days without any other business days in between. And I'm certain that is how these rules are meant to be read. The counting of business days does not start over on Monday morning.

If it did start over like that, then the outcome would be ridiculous. You could have three day trades on Friday and three day trades on Monday, and not be subject to the PDT rules, but if you had three day trades on Wednesday and three day trades on Thursday, you would be subject to the PDT rules.

That doesn't make sense, and I can't believe that any compliance officer would interpret the rule that way.

BMK
 
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