Pattern Day Trader

[pkfryer]

Bah.. just tried a few trades out with a strategy I've been reading. My IB account's got blocked and all trades come up with: potential pattern day trader!!

Did some further reading and its seems there is a rule that you have to have $25000 in your account, at least, before you can day trade. Otherwise you are limited to 3 day trades per 5 trading day!

I didn't know this!!!! I was hoping to try out some day trading with really small size trades with just an aim of covering commission costs, till I get myself use to day trading! Looks like I'll have to concentrate on my swing/short-term trading! I've asked them to reset the code on my account... but this has really screwed up my whole plan!

Do all Direct Access brokers have this restriction? How come I've never had any problem with Deal4Free CFD account?

 

[JonnyT]

Yes all Brokers based in the US have to have this restriction by law.

CFDs have much wider spreads making it more difficult.

You could use a trading simulation add on to IBs TWS...

JonnyT

 

[pkfryer]

Okay, thanks JonnyT! I'll try out that simulation.

I think, considering they are money grabbing *******s, there is a very very good reason for this limitation! It just shows the potential risk involved in day trading if they have come up with this restriction. And the thing that p!ssed me off a bit... the trades I did were actually profitable but after commission they still ended up a losing position! Small sizes just dont work when day trading!

 

[Hittfeld]

Or you could use a european discount broker. Many of those are not obliged to observe this SEC rule, even for US-equities.

Regards

Hittfeld

 

[bigtimetrader]

I mentioned this in my "Day trading under $25k" thread.

My friend had the same problem and found this broker www.alldaytraders.com
He has used them for a couple of months without any problems. They are not a US firm and do not follow that rule. He got offered a lower rate than they post on their site by sending them an email.

 

[pkfryer]

Sorry, I didn't read your thread before!

I think I might find another broker then, even though IB looks pretty cool! Reading the website it looks like its more the brokers getting miffed because they can't charge you huge interest rates on day trading activity rather than the risk to them! I am very sure that they are highly proficient with putting the thumb screws on traders that blow their account and get into debt with them. And from my experience in the past (of blowing accounts big time) the broker normally margin calls you before you lose everything anyway! so what extra risk is it to them if you blow your account and have everything liquified? If you do become in debt its like any other debt, but the risk to them is limited!

They want that $25K in there so they can be slurping up the interest rates but hiding behind the veil of risk!

I'll go to a UK broker for now then.. what other brokers besides alldaytraders.com can you recommend?

 

[bigtimetrader]

They want that $25K in there so they can be slurping up the interest rates but hiding behind the veil of risk!

I'll go to a UK broker for now then.. what other brokers besides alldaytraders.com can you recommend?

Actually the $25k day trading rule is not the broker's rule, it is an NASD/SEC rule. It's not like Ib or any other broker is trying to "Get over on you", all US brokers have to follow that rule because they are governed by the NASD & SEC.

Sorry, I am in the US, so I don't really know too much about UK brokers. Good luck to you in finding a broker that fits your needs.

 

[pkfryer]

I'll have a look at the alldaytrader broker.. looks good and cheap! Besides I'm starting to experience the infamous IB customer support!

They have blocked my account now full stop... saying: potential pattern day trade. So I email them and say remove this as I made a mistake and wasn't aware of the restrictions being in the uk where the government expresses its draconian traits through taxing us to death instead of strangling us in red tape.. which I believe is more the US style!

They come up with some formal email in order to release the code... which I reply in the appropriate manner! They then come back to me and say: Your account isn't flagged as pattern day trade.. have a good day!

I email them back and say... somethings stopping me trading and its telling me stuff about pattern day trade! Whatever this is, please remove it as I only want to trade short-term! No reply!

Now I have missed some profitable trades because of this restriction... and they seem to treat everything I say as being of no consequence as they are right!

I'll definitely be looing for another broker!

 

[Trader333]

pkfryer,

When you say "Short Term" trades what do you mean ?

Also just because you didnt understand the ruling doesnt exempt you because you made a mistake as that is not how it works. Your account will return to normal after a few days have passed. As others have said this is not an IB ruling but an SEC one and no exceptions are permitted. You may not like the ruling but I doubt you will get this changed just because you didnt know it.


Paul

 

[bernie]

Hi

If you deposit $25000 with Ib can you use those funds to trade with to become a pattern day trader.
Or do you have to always maintain a minimum $25000 in your account so therefore you really need extra cash to trade ie $50000.

 

[pkfryer]

I know Paul... I should have read the 100 page document when I was opening the account but I didn't have 5 hours to spare at the time. I'm just frustrated to be honest, I was looking forward to getting my feet wet with day trading US markets direct access. So its just me feeling disappointed and frustrated rather than anything else!

When I looked at the site it mentioned the $2000 minimum deposit but I dont recall reading the $25K limit anywhere.

What im frustrated about also, is that they said they could remove the code that the account is set to (pattern day trade), its in the rules... that the broker can reverse the coding of an account if they feel there is sufficient grounds. And they were quite happy to do this.. even sending me the formal email I told you about where all I had to say in the reply was: I agree.

But its had no effect and I still cant trade.

Short-term trades, for me, means non-day trades lasting between 2 days up to several weeks.

Bernie from what I've discovered you need a MINIMUM of $25K.. you will get a pattern day trader margin call if your account goes below the $25K. If you dont meet the margin you will be limited to 2 times your account size for margined trades and only a few trades per day... I might have remembered it wrong but its something like that.

I would go for a non-US based broker if you dont have the funds and want to experience day trading. I dont think you are doomed to fail with less than $25K but you'll just be very restricted with the trade sizes which will make it more likely that you will be looking at tens of dollars profit per trade instead of hundreds. Good enough to learn... couple of grand is all thats at stake if you blow the entire account, forcing you to go small until your consistent.

Try out www.alldaytraders.com as it looks like just the ticket

 

[Trader333]

bernie,

In my view $30K is enough but $25K definitely is not. If you opened a trade and the market went against you, with you only having an account with $25K, you would not be allowed to open any new trades until your account went back above the $25K minimum.

pkfryer,

If they have said that they would reset your account then fair enough. Have you tried contacting IB in the US as I have always found them to be pretty good ? You can also do so for only 1p per minute and if you want to know how drop me a PM and I will tell you.


Paul

 

[pkfryer]

Thanks paul... I might just do that, see if they respond to my email and if they haven't by this evening I'll ring them up!

Frustrating, but I suppose the best way to learn is the hard way. I will never make that mistake again. I actually think IB is very good! I like the idea of having an API that you can link straight to, and as far as I can tell the fills that I had were very very fast and even when I did a 'market' order they didn't screw me with slippage at all and I got a prices smack on those currently displayed even when the prices were moving fast. I'm not going to give IB the shove but for the time being I'll practice with a non-US broker.