Remove or revise the PDT rule

Remove or revise the PDT rule

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Dalton Resler started this petition to Securities and Exchange Commission and

FINRA defines a patter day trader as "any margin customer that day trades (buys then sells or sells short then buys the same security on the same day) four or more times in five business days, provided the number of day trades are more than six percent of the customer's total trading activity for that same five-day period." Pattern day traders are required to keep $25,000 in their trading account in order to continue day trading.

With the recent rise of low-commission retail brokers, many more people have access to markets and all of the instruments that come with them. The pattern day trader rule severely restricts the small trader. Once a trader with less than $25,000 has executed 3 day trades within 5 business days, he/she must hold any new position overnight or have their account restricted for 90 days, making them unable to trade at all.

The reason one chooses to day trade is to avoid overnight risk in their portfolio. A trader with less than $25,000 is at a significant disadvantage if he/she is forced to hold a position overnight if that was not the intent when the trade was put on. Traders below the PDT requirement may resolve to get around the rule by using an offshore broker. Offshore brokers are not subject to the PDT rule which means they are not subject to any other FINRA regulations, posing an obvious risk to the retail trader depositing money with the firm. Trader's may also decide to enter the futures market where there is no PDT rule. Leverage available in the futures markets is much higher than in the equity market, posing another risk to the small trader trying to escape the rule. 

In summary, the rule puts small traders at a disadvantage by

1. Forcing them to hold undesirable positions because cutting the loss would result in the account being restricted

2. Miss opportunities because they are out or almost out of day trades

3. Forcing them to use an offshore broker or seek alternative, possibly riskier markets to participate in.

We ask that you remove the rule so that the individual investor/trader is competing on a level playing field and allow brokers to enforce their own rules based on account size, investment experience, etc. 

 

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