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How to Circumvent Pattern Day Trader Restrictions at Trader’s Narrative

pattern day trading rule alliance jamaica.pngJust 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). ;-)

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26 Responses to “How to Circumvent Pattern Day Trader Restrictions”  

  1. 1 Ugly

    Another way is to join a prop trading firm. You can get up to 10-20x intraday buying power on $5000 or less.

  2. 2 Babak

    Ugly, yeah for sure. But $5000 is still $5000. Some start out with a small grubstake.

  3. 3 Prospectus

    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!

  4. 4 Babak

    you can go with their per share fee structure and as I mentioned you can negotiate with them if you’re active.

  5. 5 Handy


    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.


  6. 6 Babak

    as far as I know options are excluded from PDT rules. The best source to confirm is your broker.

  7. 7 bob g

    if I bought a stock one day and sold it the next day, then bought it back that day and sold it the next,then bought it back and sold it the next and so on and so on, whould I be considered a pattern day trader> I bought a stock yesterday,sold it today. Now I want to but it today again. How many times can I do that.Thanks.Bob

  8. 8 Andy H

    Bob, you can do that forever. The pattern daytrader rule applies ONLY for a stock bought and sold in the same day, with the big exception that you can sell a stock carried over from the previous day, then buy it back the same day.

  9. 9 Jon

    Does anyone know of any other brokers like Allience or what surch criteria I should be use to find such brokers. I would like to compare.

  10. 10 Gregory

    Can someone further clarify the PDT rule for me please? Is it to say that you can’t buy and sell the SAME stock 4 times in 5 days or you can’t buy and sell ANY stock 4 times in 5 days? Could I get to my limit by selling one stock 4 times and then move on to something else? Thanks.

  11. 11 Anthony

    From Wikipedia:

    Round Trip

    If you buy the same stock, at 3 different times in the same day, and close all of that same stock in one trade, that will be considered 1 “round-trip”. Selling again will trigger another round trip, and another sell will trigger a third. The next round trip in the next 4 business days will freeze your account (you can only close existing positions) for 90 days, or until you get $25,000 cash into your account, whichever comes first. This also applies to options.

    Question… “close all of that same stock in one trade, that will be considered 1 ’round-trip’.”…

    So what would happen if I bought 500 shares of each of 4 different companies at market open and sold 499 of each position later that same day? Does that constitute a “pattern day trader” because I still have 1 share of each company and didn’t close out any of my positions?

  12. 12 Seb

    Along those same lines as Anthony, what happens if I buy 500 shares of something, and I want to shed off a few shares, say 10, on the same day, leaving me with 490.

    Will that constitute a round trip?

  13. 13 scottrader

    Just called my broker at Scottrade. PDT applies to options as well

  14. 14 Andy H

    Actually, if you buy the same stock 3 times in the same day, then sell all the shares the same day, that would constitute 3 day trades. On the other hand, if you bought the stock today then sold in in 3 pieces today, that would be only 1 day trade.

    I’ve found that the best way to avoid making a day trade if you have to get out (say, because the market goes against you) is to hedge with an inverse ETF overnight. For example, say you bought XLF (the financial sector SPDR ETF) today, but the market goes south. If you buy a half-position in SKF (2x inverse financials) before the close, you total exposure to further decline is neutralized. You can sell both positions the next morning (or whenever you chose) without encountering another day trade. This strategy works best in margin accounts.

  15. 15 Carl

    Hi, Everyone,
    If you trade using a cash account but not a margin account, will you be considered as a pattern day trader?



  16. 16 robb

    DO NOT TRADE WITH ALLIANCE…..They are a bunch of scammers. Their hidden fees on what I believe is commissions will eat your account alive, with no explanations or feedback. Yeah, they allow daytrading so they can take your money. I will never invest another penny in Jamaica, where these crooks are based.

  17. 17 Oggie Doggie

    If you purchase 4 different shares and end up getting stopped out on the same day because the market declines unexpectedly, you are automatically designated a day trader. This can easily happen even to conservative investors. Since they typically do not want to be considered day traders, the Pattern Day Trader rule discourages their participation in the equity markets. This decreases liquidity in the markets, which is certainly an undesirable consequence.

    If you buy a $10 stock option, your total risk is $10 plus commission and not a penny more. If you sell the option the same day, then that counts as a day trade. Do that 4 times in 5 consecutive days, and you are automatically designated a day trader. But your total risk is only about $10 on each trade. This should be covered by normal margin requirements. The $25,000 minimum deposit requirement is totally out of proportion to the $10 risk that is taken in these options trades.

    The Pattern Day Trader rule is supposedly intended to protect brokerages against clients who lose money on highly leveraged day trades, and then cannot pay their debt. But it is not clear how this rule accomplishes its objective.

    The Pattern Day Trader rule is far too broad, and it does more harm than good. It harms the equity markets by discouraging trading, and thereby decreasing liquidity.

    But this rule will never change unless individual investors like you complain about it to the Financial Industry Regulatory Authority (FINRA). They can be reached at Telephone 301 590-6500.

    Send your complaint in writing. Then post it on this web site. That will encourage other investors to do the same.

    Do your part. Complain today. FINRA won’t recognize how pernicious this rule is if you don’t tell them.

  18. 18 Mike

    If I buy and sell 3 stocks on 3 consective days like buy and sell stock 1 on monday, buy and sell stock2 on tuesday, and buy and sell stock 3 on wednesday….does this makes me a patteren day trader? Beside i am in Canada, so i guess PDT does not apply?

  19. 19 Mike

    another question…PDT applies only to margin accounts and not cash accounts?

  20. 20 James

    Alliance is absolutely not worth it. I’m waiting almost 30 days for funds…………they told me to call back in about 2 weeks. It was mailed out on the 3rd of October according to them. Try SURETRADER…………..much better commision structure…..6x leverage…………..and they are not braindead to deal with.

  21. 21 Baruch

    Regarding options, while the pdt rule applies, it is only for buying on margin and most people I know consider options already leveraged so there is not need to leverage them twice. That is to say that if you bought an option at 1/10 stock price with a delta od .5 then you have in effect bought on leverage of 5:1. You really don’t need any more leverage so the pdt rule is not relevant.

  22. 22 James is much better than ALLIANCE. Suretrader give 6x margin and does 4.95 plus exchange fee trades.
    Alliance sucks.

  23. 23 fht

    I have called around and offshore brokerages say they will not open accounts for US citizens.. IBW. SURETRADER.

  24. 24 James

    I have called around and offshore brokerages say they will not open accounts for US citizens.. IBW. SURETRADER.
    NOT TRUE…………..Sure Tader does………………………………….

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