Solution to the US 3 trades rule

[FTSE Beater]

Hi all

I have a solution to the stupid 3 day trades a week ruling for US shares. I would like to take full credit for this idea, however I must thank Trader333 for putting the idea in my head in the first place.

What you need to do is have 2 trading accounts with either the same or 2 different brokers.

Say you want to go long on MSFT at $27. You go long on account 1 at $27. If you then want to close the trade (in the same day), what you have to do is go short on MSFT on account 2. What you then have is account 1 going long and account 2 going short. Any movement from then on is canceled out.

The next day you close the 2 positions (hopefully getting good exits on both) and as you've closed them after the day you open them, they don't count as day trades.

Word of warning though, you might need plenty of capital in both accounts to cover the margin.

Big thank you goes to Trader333 for giving me that idea

 

[sidinuk]

but if you had plenty of capital then you wouldn't need a work around?

 

[blash]

Does the 3 trade rule only effect trading in US SHARES?
I recently set up an account with IB with less than £10k but have made unlimited trades so far on the mini Dow (YM), sometimes 3-4 per day.

 

[Skimbleshanks]

Futures are exempt from the rule - which is probably why they are so popular!

 

[FTSE Beater]

but if you had plenty of capital then you wouldn't need a work around?

Hi Sidinuk.

Yes that's true, but say you had £10,000 - your still about £8,000 short, but with £5,000 in your account on double margin - that would make for some great buying (or shorting) power.

 

[sidinuk]

That's true FTSE Beater. And now that you've been to see Mr C I bet it won't be long before you've got your 25k anyway.

 

[wysinawyg]

If you had £10k you could use GNI's CFDs which they claim give you market prices (they charge 0.25% commission rather than vary the spread).

wysi

 

[FTSE Beater]

Hi all

My brains been working overdrive on this one, so if it's complete non-sense. Someone please say so

I've checked the ruling and I can't fully what they call a day-trade.

If you go long 100 lots, then sell 50 lots and another 50 lots (in the same day). I would say that is day-trading and the position is closed, but how about this.

Go long 100 lots and selling 99 lots, leaving 1 left. Now if this 1 is closed the following day, you haven't day-traded, just scaled back your position. This to me means as long as you leave at least 1 lot left and close it the following day, it shouldn't count as a day trade.

The only disadvantage I can see is that you leave 1 position open which won't cost the earth.

Here's the ruling if you want to have a look http://www.speedtrader.com/nasd_rule_2520.html
The only real way is to try it out and test. It's a hard task but someone has to do it

Right ok - fire away with the comments

 

[neil]

PDT

Hi FTSE,

I've posted the below link on one of NAZ's threads. It's a company that provides finance to circumvent the day trade rule.

http://www.directnettrading.com/elitetrader.htm

I do not know sufficient to recommend them but maybe if you enquire over at Elite trader.com they can provide further information and discussion.

Naz might have a comment if you ask him.

regards

 

[wysinawyg]

<i>Right ok - fire away with the comments</i>

It doesn't anywhere mention the amount of the security, just buying and selling the same security in the same day. Nice idea, but I think the brokers are likely to have a pretty risk-averse position on the definition and play it safe.

On the other hand if you are using automated dealing and the techies have been careless it might work until someone notices it (which might be never).

wysi

 

[FTSE Beater]

Hi Wysi

It's in the testing stage at the moment, and I will keep everyone updated. It does seem funny dealing with odd numbers though

Glad it's not just me who can't see a problem

As a side thought. What happens if you cut the position in half. Does anyone close half a trade and still stay within the 3 trades rule?

 

[qtyewq]

Hi all

My brains been working overdrive on this one, so if it's complete non-sense. Someone please say so

I've checked the ruling and I can't fully what they call a day-trade.

If you go long 100 lots, then sell 50 lots and another 50 lots (in the same day). I would say that is day-trading and the position is closed, but how about this.

Go long 100 lots and selling 99 lots, leaving 1 left. Now if this 1 is closed the following day, you haven't day-traded, just scaled back your position. This to me means as long as you leave at least 1 lot left and close it the following day, it shouldn't count as a day trade.

The only disadvantage I can see is that you leave 1 position open which won't cost the earth.

Here's the ruling if you want to have a look http://www.speedtrader.com/nasd_rule_2520.html
The only real way is to try it out and test. It's a hard task but someone has to do it

Right ok - fire away with the comments

Good try, any roundtrip in a single day is a daytrade. The share size is irrelevent, only the symbol is relevent.

 

[TheBramble]

The NASD 2520 Rule states:-



So, if the brokers are going to take a literal interpretation of the rule (my guess is, they will!) then ANY buying/selling or selling/buying of the same stock OF ANY QTY on the same day will count as a daytrade.

Is the only downside to this rule that you need a $25,000 in your margin account?

 

[TheBramble]

Sorry, don't know what happened to to the rule in my previous post - I tried to italicise it...

(i) The term “day trading” means the purchasing and selling or the selling and purchasing of the same security on the same day in a margin account except for:

a. a long security position held overnight and sold the next day prior to any new purchase of the same security, or

b. a short security position held overnight and purchased the next day prior to any new sale of the same security.