PDT rules question

[davedavedave]

Probably a really stupid question......The rules say that more than three trades in 5 days makes you a pattern day trader and thus you require $25,000 in your account. But Im not sure what counts as 'three':
Does it mean:
3 x (Buy+Sell) or
(buy + buy + sell) with the next buy making you a PDT?


Im lingering on the edge of 25k so its quite important that I know before I start trading.

 

[Mr. Charts]

Have a look at the interactivebrokers site for FAQs for an explanation. Sorry haven't the time to find it for you at the moment.

Probably a really stupid question......The rules say that more than three trades in 5 days makes you a pattern day trader and thus you require $25,000 in your account. But Im not sure what counts as 'three':
Does it mean:
3 x (Buy+Sell) or
(buy + buy + sell) with the next buy making you a PDT?


Im lingering on the edge of 25k so its quite important that I know before I start trading.

 

[Skimbleshanks]

Who are your brokers? If it's IB they will not let you open a new trade if you have done 3 daytrades in a five day period.

The SEC rule is that 'four or more securities daytrades (open and close in a day) within 5 business days is considered a PDT.' If you do, this triggers a 90 day ban on opening new trades, unless additional funds are added to your account to bring you over $25k.

It is for this reason that IB limits your account to 3 daytrades within a rolling 5 trading day period so that there is no question of you doing 4 and them having to freeze your account for 90 days.

 

[davedavedave]

I see, so a 'trade' includes both buy and sell. i was not sure whether a 'sell' and a buy counted as two trades. Well IB sounds useful in that respect. I've opened an account with Etrade, (I had not considered IB) moving from IMIweb. Im just waiting for the dollar to slide again before converting money to dollars. Im hoping that the dollar wont take a further battering once I have transferred the money though. Is IB denominated in pounds?

 

[Skimbleshanks]

With IB you can decide what currency you want your account to be in - but once you've decided you cannot change it (apart from opening a new account). So you can have a Euro account, GBP account, US dollar account, etc.

 

[carl131]

I'm thinking of opening an IB account to trade US stocks. I've been wondering which currency would be better in the long term. If I set up an account in pounds, are their exchange rates favourable for individual trades, or would it be better to set up an account in dollars (as it's weak at the moment) , and only pay one-off commissions to deposit/ withdraw pounds. Thoughts anyone?

 

[Skimbleshanks]

Unfortunately there is no right answer - only you can decide what is best for you.

It comes down to whether you're going to be transferring money in and out of the account occasionally, or regularly. And also whether you are trading predominantly US or UK stocks/indices, as your 'winnings' will be credited to your account in the currency in which the stock is traded.

So if you have £2,000 in a GBP account, and make $200 on trading a stock, your account will show your balance as £2,110.49 (£2,000 plus $200 at 1.81 exchange rate). The balance fluctuates depending on the exchange rate - and it can be particularly annoying to 'lose' an amount just because the interest rate has dramatically changed overnight.

 

[carl131]

Thanks, Skimbleshanks.

I probably wouldn't be transferring money in and out of the account that much, as my plan is to papertrade for some time, to get a feel for the stocks (having previously traded UK stocks), then trade only 100 share blocks, to preserve capital, until I'm absolutely happy with my trading style (if that day ever comes!). I am well aware of the dangers out there.

I'm also restricted by the PDT rule, as at present my trading capital is £11,500, so I'll also be restricted on the no. of day trades I can make. I see this as a positive restriction as it will prevent me from overtrading and means I have to pick my trades carefully.

I think I'll go for an account in pounds. Somehow it just seems less complicated, and your balance is not at the mercy of the exchange rate.