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If you’re new to trading or don’t have deep pockets, at one point or another you have probably run up against PDT restrictions. PDT was put in place in 2001 to “protect inexperienced investors“ and deter them from day trading until their trading account had over, and maintained a balance of more than $25,000 worth of assets.
Here are 3 methods to bypass the restriction:
This rule limits your day trades (A day trade is defined as buying then selling or selling short then buying the same security on the same day.) to 3 day trades per 5 rolling business days. Unfortunately this rule usually hurts retail investors more than it helps as you might be forced to either not trade or stay in poorly performing options contracts/securities trades to stay in compliance.
After becoming incredibly frustrated with this restriction I started to look for alternatives in order to get around these “protections” as I didn’t want nor need the SEC or FINRA holding my hand. After some internet digging I was able to find three ways to skirt the PDT rule.
Have money or rich parents that will bankroll your investment account easy right?
Yes, in the eyes of the eyes of FINRA you making a 25K+ deposit into your brokerage account immediately makes you a “experienced” investor even if you’ve never traded a single security before.
So if you got the money go for it, don’t worry about these poor peo… errr… “inexperienced investor” problems.
That’s right, only us plebs in the US are burdened with PDT restrictions, our chilly neighbors to the north or anybody else for that matter isn’t burdened by said regulations. The only brokerage that I was able to find that even considers accepting US residents for its services is CMEG.
CMEG is based out of Trinidad and Tobago, as such its is not regulated by the SEC.
They also don’t offer options trading, The only reason that I’m mentioning them is because others might be interested in doing daily securities trading and this is one way they can do so without being pestered by the PDT rule.
Please note that this is not an endorsement or advice to use CMEG or any other offshore brokers. There is a lot of gray law area and potential issues that can arise when following this route. Please do your own research and decide if the risks are worth it for yourself.
The simplest and easiest way that I have found to trade options on a daily basis without the annoyance of the PDT rule is to open a separate trading account to be specifically used for daily options trading. Unlike regular securities trades that take T+2 to settle(Trade day + two business days), options contracts settle T+1 (Trade day + one business day).
So for example if you buy a handful of options contracts for a stock of your choosing on Monday and sell the same day for a profit. Your funds should be settled by Wednesday market open; Monday would be the “T” and Tuesday is the “+1.” This is clearly much more convenient than dealing with the PDT rule.
As long as you intelligently “pace” your money you can trade much more frequently and even daily if your account has enough funds in it without FINRA complaining.
That being said, cash accounts also carry their own caveats and restrictions like good faith violations, freeriding, and cash liquidations. I go over these in depth in a separate post that you can find here.
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