Trader’s Narrative

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While you were watching the news about the AIG bonus dustup, hope you didn’t miss on AIG the ticker symbol. It is still kicking around on the NYSE and as a penny stock, it put in an impressive wide range day:

I have no idea why it jumped on Monday since there wasn’t really any news (other than the bonus fiasco). But a 66% jump (from last week’s close) is juicy and as a daytrader, even if you can catch a fraction of it, you’re set.

Even if we ignore Friday’s close and only take it from the gap up open on Monday to the close, it was a 36%. Not too shabby. The intraday high at the magical, round number $1.00 - something really special about round numbers that acts almost like a magnet. The more you watch it, the more you see this stuff.

You don’t want to chase a runaway train so watching for an entry point is crucial. A great, low risk entry point was available at around 10:20 AM (green arrow). Price action paused and then retraced slightly with volume dropping off. If you notice, there was some resistance at $0.60, which was then broken to the upside. This then would have acted as support. So placing a stop under it would have allowed you to define your risk levels intelligently.

No one really knew, of course, that this would turn out to be a huge wide range, trending day. But the tip-off was the incredible volume, as well as the large gap up open. AIG had already put in a bottom last week and rallied impressively already from its low of $0.33 so there was something afoot.

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).