Question about PDT

mohabitar · Jan 13, 2008

Now if i have a margin account, and trade lets say 4 day trades everyday for only FOUR days, will i be classified as a PDT? For example,

Monday: BUY and Sell MSFT, then IBM, then CSCO, then GOOG.
Tuesday-Thursday: Do the same exact thing i did monday.
Friday: Take a day off and dont trade at all.

Would that make me a PDT? The rule says if you day trade for 5 consecutive business days so Im a bit confused. Thanks

syswizard · Jan 13, 2008

Dunno....the rules are pretty complex. Also, most brokers hate the rule and each have different "interpretations" of it's details...i.e. each may treat this differently.
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â¢ The term "pattern day-trader" is defined as any customer who executes four or more day trades within five business days, provided the number of day-trades is more than 6% of the total trades in the account during that period. See Rule 431 (f)(8)(B)(ii).
If the member organization knows, or has a reasonable basis to believe that a customer who seeks to open an account, or seeks to resume day trading in an existing account will engage in pattern day trading, then, the customer must immediately be considered a pattern day trader in lieu of waiting five business days. See Rule 431 (f)(8)(B) Supplementary Material .30.
â¢ The minimum equity requirement for pattern day traders is $25,000. See Rule 431 (f)(8)(B)(iv)(1).
The amendments redefine the term "day trading" to treat the sale of an existing position held from the previous day as a liquidation, and the subsequent repurchase of that position as the
establishment of a new position not subject to day trading margin requirements.
â¢ Day trading margin requirements â For day trades in equity securities, the day trading margin requirement shall be 25 percent of either: (1) the cost of all day trades made during the day; or (2) the highest open position during the day. If a customer's day-trading margin requirement is to be calculated based on the highest open position during the day, the customer's member organization must maintain adequate "time and tick" records documenting the sequence in which each day trade is completed. "Time and tick" information provided by the customer is not acceptable.
â¢ Day trading buying power will be calculated based on the customer's account position as of the close of business on the previous day. The amendments limit day trading buying power
to four times the day trader's maintenance margin excess. See Rule 431 (f)(8)(B)(iii).
â¢ Day trading margin calls â A pattern day trader exceeding his day trading buying power results in a special maintenance deficiency. Member organizations are required to issue a
day-trading margin call to cover the amount of the deficiency. Pattern day traders have five business days to deposit funds to meet this day trading margin call. The day trading account
is restricted to day trading buying power of two times maintenance margin excess based on the customer's daily total trading commitment, ["time and tick" can not be used during this
period] beginning on the trading day after the day trading buying power is exceeded until the earlier of when the call is met or five business days. If the day trading margin call is not met by the fifth business day, the account must be further restricted to trading only on a cash available basis for 90 days or until the call is met. See Rule 431 (f)(8)(B)(iv)(2) & (3).
â¢ Pattern day traders will be prohibited from utilizing cross guarantees to meet day trading margin calls or to meet minimum equity requirements. See Rule 431 (f)(8)(B)(iv)(4).
â¢ Deposits of funds to meet minimum equity requirements or to meet day trading margin calls must remain in the customer's account and cannot be withdrawn for two business days. See
Rule 431 (f)(8)(B)(5).

JackR · Jan 13, 2008

Quote from mohabitar:

Now if i have a margin account, and trade lets say 4 day trades everyday for only FOUR days, will i be classified as a PDT? For example,

.....Im a bit confused. Thanks

Here is a fairly clear definition lifted from a Broker's web site:

- Day Trade: any trade pair wherein a position in a security (stock, single-stock future (SSF), bond or stock option) is increased ("opened") and thereafter decreased ("closed") within the same trading session.

- Pattern Day Trader: someone who effects 4 or more Day Trades within a 5 business day period. A trader who executes more than 4 day trades in this time is deemed to be exhibiting a âpatternâ of day trading and is thereafter subject to the PDT restrictions.

Note it is four or more. Read that as more than 3.

The way I read it, if you trade as indicated in your post, you are a PDT after you've closed the fourth trade on Monday.

Further, assume you just trade a single issue each day for the period (Monday thru Thursday), you are a PDT. You can only do three trades and then must wait for at least five days before you can start again without having the first three trades added to your measurement period. I assume the brokers use a sliding window and count back for 5 business days to make the determination. You could adjust the non-trading time by skipping trading days such that the 5 day windows would just have three trades in each.

But don't screw up or you will be suspended for 90 days.

Jack

syswizard · Jan 14, 2008

Quote from JackR:

But don't screw up or you will be suspended for 90 days.

Jack

Jack, sorry but that is somewhat "baloney" as it (adverse action) is highly broker dependent. Almost everyone in the industry except the SEC acknowledges this rule is now bullshit. Unfortunately, our legislature does not contain any "de-legislators"....those who remove bad or outdated laws.
Badly needed however.

EdgeHunter · Jan 14, 2008

Quote from syswizard:

Unfortunately, our legislature does not contain any "de-legislators"....those who remove bad or outdated laws.

that is right on so many levels...

<img src="http://www.enflow.com/p.gif">

JackR · Jan 14, 2008

Quote from syswizard:

Almost everyone in the industry except the SEC acknowledges this rule is now bullshit.

SysW:
I'm not sure what part of the rule you think is "baloney" - the whole rule, the $25K, or the 90 day go-to-jail feature.

I think the FOREX market is doing the job of separating the folks that like ridiculous leverage from their money (futures are not well advertised for that purpose and they are regulated).
Anyway, don't you feel there should be some restriction placed on a fool and his money? The brokers sure won't help. Maybe just for the fool with less than $25K?

Jack

syswizard · Jan 14, 2008

Quote from JackR:

SysW:
I'm not sure what part of the rule you think is "baloney" - the whole rule, the $25K, or the 90 day go-to-jail feature.

I think the FOREX market is doing the job of separating the folks that like ridiculous leverage from their money (futures are not well advertised for that purpose and they are regulated).
Anyway, don't you feel there should be some restriction placed on a fool and his money? The brokers sure won't help. Maybe just for the fool with less than $25K?

Jack

Jack - the problem with laws is that it they help some people, BUT....only at the cost of hurting others.
Think about it.
Who cares about the fools anyway ?

ang_99 · Jan 14, 2008

Quote from mohabitar:

Now if i have a margin account, and trade lets say 4 day trades everyday for only FOUR days, will i be classified as a PDT? For example,

Monday: BUY and Sell MSFT, then IBM, then CSCO, then GOOG.
Tuesday-Thursday: Do the same exact thing i did monday.
Friday: Take a day off and dont trade at all.

Would that make me a PDT? The rule says if you day trade for 5 consecutive business days so Im a bit confused. Thanks

Yes, you would have been flagged on your first day if you did 4 round trip trades. Account frozen for 90 days I believe.

JackR · Jan 15, 2008

Quote from syswizard:

Jack - the problem with laws is that it they help some people, BUT....only at the cost of hurting others.
Think about it.
Who cares about the fools anyway ?

SysW:

Laws are the price we pay for civilization. This is a philosophical thing. I have no problem with "a fool and his money....", just laws are needed to protect some folks from the bad guys. Sub-prime loans are a god example. There was greed by the house-flippers who knew what they were doing. There was a lack of understanding by the ignorant who were mislead into taking loans that they would not be able pay after the rates kicked up. Unfortunately, the IQ standard distribution curve has a low side as well as a high.

Peace.

Jack

Pholeuon · Jan 15, 2008

You will receive warning after 4th trade deposing money up to 25 K.
Account will be frozen just if you place 5th trade after you received the warning and prior deposit was received. It will be frozen or 90 days or until you deposit up to 25K.
With another words, you can make just 3 daytrades during 5 days.