PDT Question

S

smiles

Yesterday, I round tripped three day trades with an account under 25K. With everywhere else I have used for trading; this issue would trigger a warning and maybe cause a need to message and have a warning that an additional day trade will cause a PDT restriction for 90 days; for which any other place will also reset at this point in time, IME.

Currently, IB will not allow me top open any positions, even only at the 3 day trade count.

I assume this is consistent across the board for under capitalized accounts, but is there any reason why IB will not allow me to open anything with the understanding that if it were closed on the same day that it would violate PDT rules per FINRA.

Really poor timing on my part to be unable to open today; so I have to ask.

Also, what risk is associated with the brokers side if an individual violates PDT regulations?
 
• IB has various indicators to show your PDT exposure; find 'em, and put them on your dashboard.
• I believe that if you beg and ask nicely, a broker can allow an exception. I'd research that before I called.
• IB cares about IRS exposure; SEC exposure; big customers; little customers -- in that order. Your violation of the PDT regs catches their attention pretty closely.

Good luck -- maybe time to fiddle with ES FOPs then...... You've got 3 months to play with.
 
https://ibkr.info/tag/pattern-day-trader-pdt
quote from this page:
According to the governing bodies, you are now disallowed to initiate any new positions (though you can always close out preexisting positions) for a period of 90 days. You do have options which are:
A. Deposit funds into the account which bring the account value greater than USD 25,000. Accounts valued greater than USD 25,000 are allowed unlimited day trades.
B. Request a PDT Reset through Account Management. This can be done by going to the Support section of Account Management followed by Message Center and selecting “Pattern Day Trader Request” from the “Compose” drop down menu. The Pattern Day Trader Request tool will launch and the system will check to see if the account is eligible for a PDT Reset.

If the account is eligible for a PDT reset, a window will populate advising that the account is eligible. The window will show the four day trades that were executed in the last 5 business days, and it will also provide the Pattern Day Trading Reset Request Acknowledgment. Check the box that says “I have read and consent to the acknowledgment” and click the green “Send Reset Request” button. A confirmation window will populate and you will need to click “Yes” to officially submit your PDT Reset Request.
More...
 
So just to clarify, an underfunded trader can make HOW MANY day trades? I thought it was four in one week.

Is the open and close of a single position in the course of a single day regarded as one day trade, or two?

Let's say I buy 200 shares of WXYZ, place a stop order at 20 cents below my purchase price, and a trailing stop at 20 cents, sell 100 shares at my profit target, then get stopped out when it goes up another 50 cents and falls 20 cents, is this still one day trade? Do stops or limits count if not triggered and executed? Is selling half now at profit target and half later, after the stock moves up some more and then shows signs of stagnation or reversal, count as more than one trade? Or if I buy in at 100 shares now, and like what I see and buy another 100 shares 15 minutes later, then sell all, the same day?

If I buy those same 200 shares WXYZ a minute before the closing bell in anticipation of a big overnight gap and sell 10 minutes after the opening bell the next morning, that is NOT a day trade, right? And if I hold through a dozen bull candles and sell my 200 and then short another 200, that is still not a day trade until I buy to cover the short in the same day, right?

@smiles, your three in-and-outs in one day, were they the only trades for the 5 trading day period?

Asking because I might try a couple of trades with my initial brokerage account balance of $10k, after a month or so of paper trading. I will then be returning to work shortly thereafter and coming home to deposit another $20k if all goes well, but I would like to KNOW what I can do and what I can't do. The way I was interpreting the PDT rule is that four round trips, in and out of four positions, within 5 consecutive trading days, constitutes Pattern Day Trading. So am I wrong? Is each transaction, whether in or out, regarded as one of the four trades? Or is initiating a position and closing it, however it is done, a single trade for PDT purposes?
 
GrowleyMonster said:
So what would make the account eligible for a PDT reset, besides a deposit to bring the account balance up to $25k? Or the passage of 90 days since the offending trades?
More...
I don't know what criteria IB uses to judge whether you'll be eligible for a PDT reset. I have not gone through such a procedure myself.
 
GrowleyMonster said:
So just to clarify, an underfunded trader can make HOW MANY day trades? I thought it was four in one week.

Is the open and close of a single position in the course of a single day regarded as one day trade, or two?

Let's say I buy 200 shares of WXYZ, place a stop order at 20 cents below my purchase price, and a trailing stop at 20 cents, sell 100 shares at my profit target, then get stopped out when it goes up another 50 cents and falls 20 cents, is this still one day trade? Do stops or limits count if not triggered and executed? Is selling half now at profit target and half later, after the stock moves up some more and then shows signs of stagnation or reversal, count as more than one trade? Or if I buy in at 100 shares now, and like what I see and buy another 100 shares 15 minutes later, then sell all, the same day?

If I buy those same 200 shares WXYZ a minute before the closing bell in anticipation of a big overnight gap and sell 10 minutes after the opening bell the next morning, that is NOT a day trade, right? And if I hold through a dozen bull candles and sell my 200 and then short another 200, that is still not a day trade until I buy to cover the short in the same day, right?

@smiles, your three in-and-outs in one day, were they the only trades for the 5 trading day period?

Asking because I might try a couple of trades with my initial brokerage account balance of $10k, after a month or so of paper trading. I will then be returning to work shortly thereafter and coming home to deposit another $20k if all goes well, but I would like to KNOW what I can do and what I can't do. The way I was interpreting the PDT rule is that four round trips, in and out of four positions, within 5 consecutive trading days, constitutes Pattern Day Trading. So am I wrong? Is each transaction, whether in or out, regarded as one of the four trades? Or is initiating a position and closing it, however it is done, a single trade for PDT purposes?
More...




@GrowleyMonster

I will try and answer your questions to the best of my ability:

1) The opening and closing, regardless of the order/execution of the transaction BTO > STC or STO > BTC, of a position on the same trading day will be considered 1 day trade.

Here is a piece of the correspondence I had with IB personnel:

Dear Mr. Miles,

You have not violated the PDT rule. However, you have used your allotment of day trades for this rolling 5-day period. If your day trade counter reads zero on the first day, you will not be able to open up new positions. Yours reads: Day Trades Left (0 ,0 ,0 ,2 ,3).

You should, however, be able to close any open positions. In order to open new positions, your day trade counter must read 1 or higher. There are no exceptions to this and we cannot override this for your account.

"Link Removed"

"If an account has less than $25,000 in equity, it is limited to 3 day trades within a 5-day period. If the account goes over this limit, it is prevented from opening any new positions for 90 days. The IB system is programmed to protect the accounts that might "potentially" be flagged as day trading accounts by not allowing the 4th opening transaction within 5 days if the account has less than $25,000."

Please let us know if we can be of further assistance.

Regards,
Aafaque S
IBKR Client Services

- End Correspondence.

Essentially, even though FINRA allows for up to FOUR day trades in a rolling five-day period for under capitalized accounts; IB has an internal guideline to restrict the fourth trade. From my other conversations with IB personnel; this restriction is only placed after the close of market on the day of the transactions. So when I placed my trades, all three were done on the same day and I had no prior day trades within the previous five days; this is important because in theory I could have placed 50 day trades that day and the restriction would have been effective the following trading day. Since I only placed three, my account (being under capitalized) was identified as a "potential day trader" the day following my 3 trades and has been disallowed to open any positions, since IB cannot restrict the closing of a position and if done so would trigger a fourth day trade in the 5 day window up until tomorrow.

After multiple attempts, this is not something IB is willing to budge on either, as most brokers do not follow the same suit and many times I have done 43 or 5 in a day and been allowed to trade without restriction the next day after sending an email and acknowledging I messed up and yadayada.

This is taken from Ally Invest, however, I believe the explanation is pretty standard regarding partial/multiple executions of an order/transaction:

The Number of Day Trades is Important
The quantity of shares traded or number of orders placed can sometimes complicate this definition. In essence, the total number of day trades on a given day in a specific security is determined by the lesser number of opening or closing transactions. To be clearer, here are a few examples to illustrate this. All of these scenarios hold true irrespective of opening with a long or short position.

  • If a trader opens a stock position with one order of 1000 shares and exits the position with two 500 share orders, these three trades are grouped together as one day trade. (One trade is the lesser amount.)
  • If a trader opens a position with two 300 share orders, the trader has a position of 600 shares. If this position is liquidated with one order of 600 shares, this series of trades is also considered one day trade. (Again, one trade is the lesser amount.)
  • Let’s say the same trader again creates a position with two 300 share orders. Although a similar holding of 600 shares is created, two day trades will result if the trader closes out with two 300 share orders. (Two transactions on each side so two trades is the amount.)
If any of the orders mentioned above are filled in multiple transactions, this alone does not affect the number of day trades taken. For example, a trader placing an order to close a position of 600 shares may receive confirmations on 200 and 300 shares with 100 shares still open. All 600 shares will be considered one transaction, provided the trader does not modify the remaining order balance of 100 shares. If the trader makes changes to the partially filled order, it will be classified as a brand new order. If this new order becomes executed it will create an additional day trade.

It seems Ally follows a similar rule of placing a restriction after three day trades. I think this should also help to clarify your multiple closing orders questions, however, I cannot say for certain on that and do not want to provide incorrect information. I have noticed this holds true when I have used a different broker than IB or Ally though, so ther is is some support it seems.

To answer you account question about your account; You should be subject to the same rules with capital of $10K, however, once you make the $20K deposit and increase the balance to $30,000 you should be able to day trade freely without restriction so long as the capital in your account is in excess of $25,000 at all times. If it falls below this you will be required to deposit funds, etc...to meet the requirement or risk having to following PDT restrictions again until you are fully capitalized above $25k.

Hope that helps some, but I am no expert so please take with a grain of salt.

References:
http://www.finra.org/investors/day-trading-margin-requirements-know-rules
https://www.ally.com/do-it-right/investing/day-trading-rules-and-leverage/


Here is another grerat reference page on IB that I just found:

https://www.interactivebrokers.com/...hm=us&ex=us&rgt=1&rsk=0&pm=1&rst=101004100808

Also regarding your question above on how PDT reset eligibility is determined; I am not entirely sure, however, you would have to have exceeded the four trade limit for an under capitalized account; so all four would need to be done on the same day otherwise you will end up in my situation. From what I have briefly read, if you are marked for PDT then you can go through the messaging system and request a reset pretty easily, after acknowledging you understand what you did and that you cannot do it again for 90 days or else you will be restricted to closing only position until capitalized for 90 days.
 
Last edited:
tommcginnis said:
• IB has various indicators to show your PDT exposure; find 'em, and put them on your dashboard.
• I believe that if you beg and ask nicely, a broker can allow an exception. I'd research that before I called.
• IB cares about IRS exposure; SEC exposure; big customers; little customers -- in that order. Your violation of the PDT regs catches their attention pretty closely.

Good luck -- maybe time to fiddle with ES FOPs then...... You've got 3 months to play with.
More...

Unfortunately IB seems to be the only broker I have ever dealt with that will not grant an exception lol.

But thankfully I did not violate anything, just unfortunately restricted until tomorrow per an internal IB policy.

I am also trying to get approval for futures options but IB is making it difficult as well; never really had such issues with other firms but I will work around I suppose.
 
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