Tuesday, March 31, 2009

how to get around the Pattern Day Trader (PDT) designation

as we discussed a couple of posts earlier the Pattern Day Trader (PDT) rule has caused quite a lot of grief in my life. and i suspect many a other trader has suffered under the insanity of this abomination foisted on us by an idiotic SEC.

so recently i was PDT'ed again and because I was worried about just such an occurence I had been doing research on how to get around it. Below, are some thoughts on the various mechanism's found on the net. all legal ofcourse.

1. To the best of my knowledge, PDT applies to all the following trades. stock buy/sell, stock options buy/sell, futures buy/sell, futures options buy/sell. i am not sure about currency or commodities trades. but, frankly you can't trade those two without a fairly large account. 100K++.

2. Open an account with a brokerage based overseas. There are 2 problems with this. I could not find a single decent brokerage outside of the USA, which had a nice internet front end and fairly cheap trades. I checked out UBS, Australian brokerages, etc....but, nothing good. This might work though. Except, when I tried UBS, which is Swiss, the moment they knew i was an US citizen, they funneled me to their USA offices. So, that didn't work out. I gotta check out Japanese brokerages though.

3. Go through a proprietary trading firm which sets up a shell account in their name, but with whatever level of capital you bring. i don't think you can trade their capital, except on exhorbitant margin rates. plus they charge all types of fees and here's the worst part they take a % of your gains. but not your losses. stay away from them.

4. OK, HERE IS THE BEST WAY TO GET AROUND THIS. open two trading accounts with different firms. in one trade only as a daytrader, i.e. with net worth over 25K. in the other trade with the daytrading rules in mind. So that way, if you get over 25K, you wire the funds from one firm to another and now you can happily day trade away. and if you dip below 25K, no problem wire the money to your daytrading restricted account in the other firm and you're all set to go. the only bad part, is the wire cost, about $50 max and the delay in moving funds around. but, hell that's barely a day.

NOTE: I don't absolutely know for sure that this will work. I have already opened another account, but for now i will soon be over 25K (hopefully) and IB is my primary broker. I really honestly don't think your previous trading history is available outside of one firm, so they really don't know if you are a daytrader or not. so basically, even if you are pegged as a daytrader at one brokerage, the other doesn't know about it. unless they transmit the info. to the SEC and it retransmits it back down. and i can't imagine the SEC being that on point :)

so, there you have it. my thought's on how to escape the PDT designation.

oh btw, here is another way to get around this, but it is so whack...it worked for me though. i got designated a PDT about 2 / 3 months ago. the rule say's you can get one reset only in about 180 days. so i got a reset. then i got redesignated and i said WTF i'll ask them to reset it again. AND IT WORKED. they reset my account a second time. maybe they don't keep track of the resets. maybe they just don't care. maybe 2 months is too long a time for them. they sure like my commissions of course :)


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