Remove the Pattern Day Trading Rulle - Vote

[hughb]

The NASD got tired of recieving thousands of complaints from day traders during the tech boom who lost money on all their trades. Bunches of IT guys quit their jobs to go daytrade NSCP and YHOO and every time they lost on a trade, (which was nearly every trade), they would complain to the NASD about those dirty rotten "they's" that screwed them out of their money. The NASD noticed that most of these complaints came from pikers so they shut the pikers down by fining brokers who did not enforce the PDT rules which were already on the books. My broker, Scottrade, was fined $800K for allowing people like me to daytrade without the required amount of cash in the account. Ironically, the clampdown came right around the time I started slapping stocks around and consistently making money.

So that's who you can blame - the complainers who couldn't accept responsibilty for their losses. The rule was always there, it was just never enforced. The new rule simply re-worded the old one.

People should be free to lose money in the market, but there's another side of that coin and that is that the regulators should be able to do their assigned jobs without wasting time catering to whining complainers. If I were the head of the NASD at that time, I would have done the same damb thing to get the complainers out of my hair so I could keep a better eye on the Enron's in the market.

 

[Oz435]

Quote from frostengine:

The PDT rule does a lot more harm than it does good. The rule is there to "protect" you from losing your money, but instead for a lot of people including myself once upon a time the rule CAUSED me to do the very thing it was meant to stop. Since you can not day trade stocks with less than 25k in assets, a lot of people move to futures. So instead of being able to day trade MUCH smaller size in a more controlled manor. People with less than 25k are forced to move to a MUCH riskier asset class "futures" instead to avoid this rule. In futures you are FORCED to assume huge amounts of leverage to day trade. Often times this immense leverage for an underfunded account causes you to rack up losses by playing with "scared" money. Where if you simply could have day traded stocks in a much more controlled manor using a fraction of the leverage you could have performed better.

Luckily for me I am no longer below the PDT requirements so I can day trade stocks. But for a lot of people who are still below this PDT rule their performance is suffering from being forced into this much riskier asset class. Especially those just trying to learn. No better way to learn how to day trade than being able to trade small amount of shares of a stock where the worse that may happen is you lose 20 or 30 bucks. But being forced into futures even trading just 1 contract you may lose 500 to 1k in the blink of an eye.

Excellent post Frost. That exact scenario is happening to countless traders. Myself included.

 

[saico]

Quote from brownsfan019:

The rule is meant to keep tiny accounts from churning their $5k into 0 in no time.

Futures do not have the PDT, easy way around that rule.

The same person would churn the same account with 25K as well. It just takes a bit longer.

 

[prince-in-jail]

Quote from Oz435:

Excellent post Frost. That exact scenario is happening to countless traders. Myself included.

I second it only to a certain degree. Here is why:

How about trading in a simulation account while trying to learn the "knack" of it? It's there for a reason. Traders have to be aware that the risk remains identical with any instrument if they lack the fundamental knowledge on how markets move. So whether you trade futures or a few stocks, the risk does not change, only the amounts vary.

 

[Joab]

This rule actually makes things worse.

I don't know a single trader (with 5 years or more experience) that didn't blow out their account at least once.

So basically they are making it so you have to blow out 25k vs maybe 5 or 10.

How stupid is that ?

 

[5Pillars]

The PDT rule was formed for all the traders with $5,000 in actual cash, to go out and zap all their credit cards and HELOC's to come up with the $25K total to trade unencumbered. This was another credit bubble formation as directed by another brilliant government agency that is always there to be our best friend and help us all out.


PDT rule does nothing of any substance that can ever be proven of any good.

 

[saico]

Quote from frostengine:

The PDT rule does a lot more harm than it does good. The rule is there to "protect" you from losing your money, but instead for a lot of people including myself once upon a time the rule CAUSED me to do the very thing it was meant to stop. Since you can not day trade stocks with less than 25k in assets, a lot of people move to futures. So instead of being able to day trade MUCH smaller size in a more controlled manor. People with less than 25k are forced to move to a MUCH riskier asset class "futures" instead to avoid this rule. In futures you are FORCED to assume huge amounts of leverage to day trade. Often times this immense leverage for an underfunded account causes you to rack up losses by playing with "scared" money. Where if you simply could have day traded stocks in a much more controlled manor using a fraction of the leverage you could have performed better.

Luckily for me I am no longer below the PDT requirements so I can day trade stocks. But for a lot of people who are still below this PDT rule their performance is suffering from being forced into this much riskier asset class. Especially those just trying to learn. No better way to learn how to day trade than being able to trade small amount of shares of a stock where the worse that may happen is you lose 20 or 30 bucks. But being forced into futures even trading just 1 contract you may lose 500 to 1k in the blink of an eye.

Send this to the SEC, Frost! Very good point.

 

[armoured saint]

LOL, all for quid pro quo politics, nothing more. and nothing less will rescind it

 

[HedgefundTrader2]

Quote from Joab:

I think we need to start a petition (list of names) to submit to the powers that be that we want the Pattern Day Trading Rule - REMOVED.

This is a stupid rule that was enacted after the 2000 crash and is not relevant in todays market.

As a Canadian I have no rights in the US but I think we should all band together and form some sort of consortium or lobby group or list of names or something to get this STUPID law removed.

As professional traders we MUST stick together.

What next?

In our country you live by our laws.

US has no obligation to foreigners who are not even citizens interfering with our rules and regulations.

 

[HedgefundTrader2]

Quote from hughb:

The NASD got tired of recieving thousands of complaints from day traders during the tech boom who lost money on all their trades. Bunches of IT guys quit their jobs to go daytrade NSCP and YHOO and every time they lost on a trade, (which was nearly every trade), they would complain to the NASD about those dirty rotten "they's" that screwed them out of their money. The NASD noticed that most of these complaints came from pikers so they shut the pikers down by fining brokers who did not enforce the PDT rules which were already on the books. My broker, Scottrade, was fined $800K for allowing people like me to daytrade without the required amount of cash in the account. Ironically, the clampdown came right around the time I started slapping stocks around and consistently making money.

So that's who you can blame - the complainers who couldn't accept responsibilty for their losses. The rule was always there, it was just never enforced. The new rule simply re-worded the old one.

People should be free to lose money in the market, but there's another side of that coin and that is that the regulators should be able to do their assigned jobs without wasting time catering to whining complainers. If I were the head of the NASD at that time, I would have done the same damb thing to get the complainers out of my hair so I could keep a better eye on the Enron's in the market.

Investing in one thing, building wealth through asset ownership, but gambling is another addiction. Most gamblers try Options markets too and lose. Day traders with less than 25K lose most frequently. Life of an average day trader 6 months.