Pattern Day Trading rule needs to be repealed

Sometimes rules are so random that they just need to be changed.

There is rule for investors/traders. It was created after the dotcom bubble. Many traders lost plenty of money. Unfortunately they only knew how to trade in bull markets. When then mighty bear came, they crashed and burned. Now many traders are arming themselves with knowledge of trading in a variety of markets, as long as the Gov’t doesn’t intervene with rules which don’t allow the market to function properly. i.e. Short selling bans.
Well to protect/govern/legislate/??? traders/investors the SEC/FINRA passed a Pattern Day Trader Rule. I have included in the letter to my Congressmen below the basic definition, and why it should be repealed.
If you agree with me, I would like your support. You can alter the below letter, and send it to your Congressman. Here is the link to find your Congressman’s email/fax.
This is the most ludicrous rule I have ever had to abide by. Other than, “Finish everything on your plate.” But I digress. Exchange Rule 431 has caused me so much frustration at times, I can hardly see straight.
I have There is a current regulation called the “Pattern Day Trade” Rule. This rule NEEDS to be repealed immediately.
I trade 5 different accts. Brokerage, IRAs, Futures, etc. In 3 accts I have exceed the 25K and I can operate with proper trading discipline and minimize the losses due to recent volatility. Yet the other 2 are less than the regulated amount. And in rapidly changing market conditions I can’t make the amount of money I make in my larger accts, and risk much larger losses.
According to this rule, If I: Make 3 day trades in equities or options with a 5 day rolling period. I am labeled a “Pattern Day Trader” for the accts with a less than 25K. Yet, it is perfectly fine for my other 3 larger accts.
It seems absurd. It is a relatively new regulation (3 yrs, I think) and it does absolutely NOTHING to protect me. In fact, it could lead to oversized overnight losses.
There are several issues with the regulations imposed on small traders (not necessarily unsophisticated).
1) Limits execution of good trading discipline. i.e. When buying a stock (or another position), I immediately set a stop loss. Buy for 50, if it goes below 45 I exit with a $5 loss.
If I enter a position, and set a stop target. I may be stopped out on the same day. If this happens 3 times in a rolling 5 day period (easy to do in current market conditions), the trader will not be allowed to exit position 4 (and risk catastrophic losses). And to make matters worse the trader/investor will have his acct locked for 90 days. For a crime against whom??
2) Overly regulated. A maximum security society. We need to stop this over regulation.
Regulators are too concerned with keeping us “safe”. I don’t want regulated safety, like this. It is ok to provide safety against fraud, and inside information but not to regulate different laws for different financial levels of investors/accts. I have 5 accts which I trade. In 2 brokerage acct over 100K, 1 proprietary futures acct, and 2 others below 25k. In 3 accts I am consider a “sophisticated” investor, yet the other accts I am not. What gives? I feel much more secure in my larger accts, and I am able to grow that acct more quickly because I am able to be more nimble as market conditions change, or move rapidly when mispricings occur.
In the two “average Joe” accts.
If I buy 4 equities on a given day, and Goldman Sachs/Hedge Fund does the same, and later in the day something significant happens (i.e Middle eastern conflict, surprise NO SHORTING regulation), both GS and I decided we don’t want to be have that risk in our accouts. Who looses? Me. GS exits their 4 positions and then turns around and pushes the stock down, yet I can only exit 3 positions. If I choose to exit 4, my acct won’t let me or I am banned for trading that acct and labeled as a Pattern Day Trader. Who was this law designed to protect, it sure isn’t me.
3) Outdated regulation.
Although this regulation is only 3 years old, it is no longer relevant. Perhaps it was created to prevent overtrading and excessive commissions. Commissions are very, very low. They are much less expensive than having to hold overnight positions in the case of a rapidly changing market condition, and a move against my positions.
4) Who does it benefit?
This teaches the average individual that they are not sophisticated enough to handle their own money. And when they try, they are dissuaded from using proper money management practices. It further suggests they should give their money to a large Money Manager who operates with different regulations. My investment disciplines and returns have been superior to the large money managers because I am able to protect myself by moving more nimbly, yet I get handcuffed with these regulations.
I truly hope that the regulating institutions recount their decision, and repeal this Pattern Day Trader regulation.
Please Please consider my request.
Today put me over the edge and caused me to write this letter:
On days like this, I am having gains from a well-timed and well-planned trade. Yet I don’t want to get out when some piece of news has hit the wire because I don’t want to take away 1 of my 3 weekly intraday trades, and underlying has not reached my target price..
With current market volatility the stock races against me. I take a loss and also lose 1 of my 3 trades. Remind me how the SEC and FINRA are trying to protect me?

3 thoughts on “Pattern Day Trading rule needs to be repealed”

  1. I have written both FINRA and the SEC numerous times about this rule, framing it to show how this rule increases risk by encouraging catastrophic losses. I have also written my congressmen in Washington State. What I wrote:
    I am writing in response to the SEC’s Pattern Day Trader Rule. This rule, established in 2001, was designed to limit day trading among individuals with small accounts due to the risks of day trading. It is understandable why this rule was implemented; day trading is associated with risk. However, this rule has had the inadvertent effect of increasing the risk of suffering a catastrophic loss.
    One of the most important things for a trader or investor is to protect capital at all times. This means taking losses quickly and minimizing losses as much as possible. However, the day trading rule encourages traders to hold losing positions, as they do not want to risk using up their limited day trades. Also, if one is out of the 3 allowed day trades per week, the trader then cannot exit a position quickly if necessary without violating the rule and risking account restriction. Thus, the trader is penalized for protecting his capital.
    For example, last week I had a situation occur with me, where I entered a position that I planned on holding overnight. However, soon after I entered, the stock started to unexpectedly decrease rapidly in price. I was unable to exit without violating the Pattern Day Trader Rule (as I had already used up my allotment for that week). I eventually had to talk to my broker to get out of the position, but now my account will be restricted. I suffered an enormous trading loss (my worst loss ever) because I could not exit quickly.
    One can also imagine a situation where an investor, on a particular day, diversifies among a number of stocks and then sets stops on them to protect from large losses. It is very possible that 4 or more of those stops could get triggered on that same day if the overall market behaves unexpectedly. Thus, the investor’s account is restricted and he is penalized for protecting his capital.
    The Pattern Day Trader Rule also encourages people to hold overnight positions. However, in today’s volatile markets, stocks can gap up or down significantly on unexpected news. Thus, overnight positions may be more risky than day trades, as one can exit a day trade quickly. For example, one may buy a stock to hold overnight, only to find it gap down the next day, resulting in a large loss. At least with a day trade, one can watch the price action and exit quickly if necessary.
    When this rule was implemented in 2001, commissions were much higher and thus it is understandable why day trading was limited in people with small accounts. However, in today’s world of inexpensive online brokers, commissions are very low and this is no longer a concern.
    Not only does the pattern day trader rule increase risk of catastrophic loss, but it also does not make sense. For example, if a trader has a $100K account with one broker and a $10K account with another, he is assumed to be “sophisticated” enough to day trade in one account, but not sophisticated enough to trade in another.
    I strongly believe that FINRA and the SEC should reconsider the pattern day trader rule, for it increases risk in today’s volatile markets. A trader should never be penalized for protecting capital and exiting a trade quickly. In my opinion, either the number of allowed day trades should be increased, or the rule should be repealed.
    Thank you for your time

  2. Has anyone heard about anything going on with this rule? I have just opened up a brokerage account with around $700. I turned that into $1000. Then I got my account blocked because of the pattern day trader ruling. I had not heard of that before.
    So in effect, I do not have the 25K to put in a daytrade account so I am limited on my options to trade.

  3. I got screwed by the PDT rule as well. I had 30k in my account and was labeled a PDT. The stock I bought began to plummet so I sold out my 5200 shares at a big loss. I tried to rebuy the stock 60 cents less than what I sold it and I was locked out. My account was frozen and I wasn’t allowed to repurchase my stock. The stock proceeded to climb another $1.50 and I was left out of recouping $11,000 of my money. All because of this bogus rule. I believe it’s criminal that you are not allowed to buy and sell whatever stock you want with your own money.

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