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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16 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.
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
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.
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.
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.
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?
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?
Just called my broker at Scottrade. PDT applies to options as well
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.