Remind me why the PDT Rule exists.
- Thread starter ark93
- Start date
When originated in 2001 it was supposed to help prevent undercapitalized retail traders from blowing up from overtrading
But the irony was it increased intraday margin to 4x as long as you exceeded 25k balance
The reality is it forced many undercapitalized traders to seek higher leveraged products such as options and futures
But the irony was it increased intraday margin to 4x as long as you exceeded 25k balance
The reality is it forced many undercapitalized traders to seek higher leveraged products such as options and futures
This is why the rule does not make sense to me, outside of what another contributor said about officials simply wanting to cover their behinds. My experience with bureaucracies has led me to conclude that their main concern is making it “appear” as if they have addressed a situation when, in reality, their so-called solutions rarely ever resolve much of anything.
To "appreciate" the governmental agency oversight of "unsophisticated" investors, you should go back to when PDT rules were enacted... 2001. Just after the Dot-Com bubble crash, and coincidentally before 911.
PDT rules were designed to protect brokerages. And similar to an "accredited investor" being determined by net worth, sophistication "deemed" necessary for day trading is determined by account size. 25K is designed to prevent a burger flipper from an impossible-to-pay margin call and the financial damage to the brokerage and the individual. Protect the investor is obviously how the spin went, and continues to go.
PDT is nothing more than government and its agencies taking sides, and limiting access and availability to the masses.
And BTW... The common PDT threshold is 4 round-trip day-trades, executed within a 5 successive business day window.
PDT rules were designed to protect brokerages. And similar to an "accredited investor" being determined by net worth, sophistication "deemed" necessary for day trading is determined by account size. 25K is designed to prevent a burger flipper from an impossible-to-pay margin call and the financial damage to the brokerage and the individual. Protect the investor is obviously how the spin went, and continues to go.
PDT is nothing more than government and its agencies taking sides, and limiting access and availability to the masses.
And BTW... The common PDT threshold is 4 round-trip day-trades, executed within a 5 successive business day window.
I think that simply not allowing margin trading or shorting below a certain level of capitalization would be quite sufficient. Preventing commerce seems very unAmerican to me.
There is no rule passed without intent to separate wealth from the masses. Has been like this for a long long time. And it's always under the guise of helping the little guy. Proof is in the math. Has wealth continued to accumulate at the top at greater portions? Yup.
Just an FYI, that wealth hasn't amassed by day trading! I'd much rather all the punters could day trade with less than 25K, give me more suckers to act as counterparty to my trades. I certainly have no fear that eliminating the PDT rule would have an iota of impact on my wealth, and I actually do trade! The rest of the wealth in the country could give fuck all about the rule if they even know it exists, you flatter yourself if you think it's some kind of conspiracy of wealth because that would indicate that the wealthy are anything but indifferent about it. Your "proof" has a much more prosaic explanation - tax cuts and tax structures that benefit the wealthy at the expense of those who earn their money from wages combined with the natural increasing returns to adoption that wealth has always had. Occams Razor, no need for vast conspiracies under the guise of pattern day trading rules!
It just pushed everyone to Options ( could trade same stock account ) to Forex ( cheapest after Options took it all ) then Futures, just changed the game from trading a few things from actively looking for the next stock that's likely to double.
I'm still on the Forex page, 18 years on
I'm still on the Forex page, 18 years on
PDT is problematic in modern era because it reduces the number of parallel strategies you can run on sub-accounts when you're not yet well capitalized, since each sub-account will require $25k, or at least this was the case last I checked on IB two years back. (Yeah, there are ways of running a lot of strategies on the same account, but not all platforms support this and a simple hand-constructed solution is likely to be unsatisfying.)
Adding a constraint like this on equities alone and then leave everything open is also like WTF. Why shouldn't amateurs be day trading the easiest asset out there (long bias)? The primary cause of catastrophic failure is leverage; overtrading without leverage very slowly drains you account (all in bets on penny stocks aside, but those are going to bury you on longer holding periods too).
Adding a constraint like this on equities alone and then leave everything open is also like WTF. Why shouldn't amateurs be day trading the easiest asset out there (long bias)? The primary cause of catastrophic failure is leverage; overtrading without leverage very slowly drains you account (all in bets on penny stocks aside, but those are going to bury you on longer holding periods too).
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Margin, especially 4x's which everyone is going to use over 25K, forces you to be a day trader as a move against triggers margin call and positions to be closed at a loss.
18years on, I'd like to see the long term effect PDT created, how many people where forced to open with 25K+ just to blow it all, or atleast to below the 25K level then frozen.
Only traded 1 penny stock, was up like 400%, still going crazy, I got in was up 50% in 20mins thinking time to bail, then trading stopped, delisted came back OTC lost $1000 in approx 20mins, bad day!! Never listen to your mates who badgered me to get in