How to Circumvent Pattern Day Trader Restrictions
Published May 7th, 2007 in Trading Tags: alliance, daytrade, daytrading, intraday, jamaica, margin account, nasd, NYSE, pattern day trader, PDT, SEC, sipc insurance.
Just so we’re all on the same page… on February 27, 2001 the SEC, at the behest of the NASD and NYSE, instituted a set of restrictions which limited daytrading to those accounts which hold $25,000 or more. To mitigate the outcry, they allowed 4:1 intraday leverage (before we only had 2:1).
This came to be known as the Pattern Day Trader rule (PDT):
Anyone who wishes to buy and sell a security four or more times in any five consecutive business day period must have $25,000 or more in their account.
But… if you really, really want to daytrade and just don’t have $25,000 lying around (or maybe you have the sum but prefer to use it elsewhere) there is a way to get around this law. The key is that this is a US law and it only applies within the US. If you open an account with a foreign broker who has chosen to not apply the PDT rule, you’re free to trade as much as you like with a lower balance.
I’m sure there are many. One that I know of is Alliance. I have never used them myself but have heard good things about them from other traders. They are based in Jamaica and are registered with the regulatory authority there (Financial Services Commission).
As far as I know, they are not registered with any US regulatory authority. And go to great lengths to not (appear as though they) actively solicit customers from overseas. But if you apply and open an account, they won’t turn you down. I guess it must be that world famous Jamaican hospitality.
The biggest advantage is that you can open a margin account with as little as $2,000 US and get 4:1 intraday leverage (!). Another bonus is that you can short on a downtick! The downside is that if anything goes wrong, you are subject to Jamaican law. And there is no SIPC insurance. There’s also the not-so-cheap commissions (about $16 round trip for 500 shares). But if you ask them nicely, you can negotiate the rates down to a more reasonable level.
As always, perform due diligence. Don’t take anyone’s word for anything.
My expert opinion is that it is perfectly legal for a US citizens to have an account with them (but since I got my Doctorate of Jurisprudence at Regent University I know as much about the law as a small, forest dwelling, rodent). 
alliance, daytrade, daytrading, intraday, jamaica, margin account, nasd, NYSE, pattern day trader, PDT, SEC, sipc insurance
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8 Responses to “How to Circumvent Pattern Day Trader Restrictions”
- 1 Pingback on May 15th, 2007 at 4:05 pm
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Another way is to join a prop trading firm. You can get up to 10-20x intraday buying power on $5000 or less.
Ugly, yeah for sure. But $5000 is still $5000. Some start out with a small grubstake.
Alliance’s commissions would kill the small account trader. When the amount you risk per trade (say 1% of $2k, or $20) is near the amount of your commission ($16), there’s no way you can win. No PDT restrictions would be great, though!
Prospectus,
you can go with their per share fee structure and as I mentioned you can negotiate with them if you’re active.
Hi,
Could we do day trades using equity index options (NDX or SPX) WITHOUT any limitation of pattern day trade rule ?
Your reply is highly appreciated.
REGARDS,
Handy,
as far as I know options are excluded from PDT rules. The best source to confirm is your broker.