I have been a Financial Advisor for 12 years and a day trader for the last 3 years. I understand that the PDT rule was put in place to help limit the risk of loss for individual investors however I do not believe it accomplishes that. Most brokerage houses will allow 4X margin to be applied to a brokerage account for investing/trading. By requiring $25,000 minimum equity to be a day trader this essentially gives an individual $100K worth of buying power; this is an incredible amount of risk. I do not see how this is more beneficial then allowing a new trader to day trade with a $2K or $5K account limiting their buying power to $8k-$20K. As someone who has also traded with cash only I have found myself extremely limited to opportunities because of the potential rules of trading with unsettled funds because of the restrictions that can be placed due to not maintaining 25K in equity.
As far as I'm aware all brokerage houses have Margin Equity (House Call) requirements that are clearly disclosed to clients who day trade with margin; this allows the brokerage firm to liquidate a customer's position if it falls below a certain percentage of equity (actual cash in their account). I believe this is the best protection any investor has for day trading with cash or on margin. If a customer isn't managing their position appropriately the brokerage firm has a legal right to liquidate the position to limit a customer exceeding the cash value of their account.
I think FINRA should consider that liquidating a customer with a $5K cash position who has lost 30% due to a House Call ($1,500) is far better then liquidating an individual who has $25K who has lost 30% ($7,500). I believe the PDT rule to be outdated and unnecessary with the technological capabilities brokerage houses already have in place that can restrict a customer from blowing up their account. More and more people are looking to make additional income but as a nation we would rather have them gamble their $2K, or $5K on random bets with no restrictions in place rather than lowering the limit and allowing them to learn the potential of the stock market.
My suggestion would be to lower the required minimum equity to $2,000 and remove the 3 trades in rolling 5 period rule. Allow investors to trade with cash or margin and manage their risk through the brokerage houses they do business with. Brokerage houses have sophisticated tools in place to ensure customers only risk their initial investment.
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Greg Comment On Regulatory Notice 24-13
I have been a Financial Advisor for 12 years and a day trader for the last 3 years. I understand that the PDT rule was put in place to help limit the risk of loss for individual investors however I do not believe it accomplishes that. Most brokerage houses will allow 4X margin to be applied to a brokerage account for investing/trading. By requiring $25,000 minimum equity to be a day trader this essentially gives an individual $100K worth of buying power; this is an incredible amount of risk. I do not see how this is more beneficial then allowing a new trader to day trade with a $2K or $5K account limiting their buying power to $8k-$20K. As someone who has also traded with cash only I have found myself extremely limited to opportunities because of the potential rules of trading with unsettled funds because of the restrictions that can be placed due to not maintaining 25K in equity.
As far as I'm aware all brokerage houses have Margin Equity (House Call) requirements that are clearly disclosed to clients who day trade with margin; this allows the brokerage firm to liquidate a customer's position if it falls below a certain percentage of equity (actual cash in their account). I believe this is the best protection any investor has for day trading with cash or on margin. If a customer isn't managing their position appropriately the brokerage firm has a legal right to liquidate the position to limit a customer exceeding the cash value of their account.
I think FINRA should consider that liquidating a customer with a $5K cash position who has lost 30% due to a House Call ($1,500) is far better then liquidating an individual who has $25K who has lost 30% ($7,500). I believe the PDT rule to be outdated and unnecessary with the technological capabilities brokerage houses already have in place that can restrict a customer from blowing up their account. More and more people are looking to make additional income but as a nation we would rather have them gamble their $2K, or $5K on random bets with no restrictions in place rather than lowering the limit and allowing them to learn the potential of the stock market.
My suggestion would be to lower the required minimum equity to $2,000 and remove the 3 trades in rolling 5 period rule. Allow investors to trade with cash or margin and manage their risk through the brokerage houses they do business with. Brokerage houses have sophisticated tools in place to ensure customers only risk their initial investment.