Wednesday, September 2, 2009

Prop Firms and Getting Around The $25K Day Trading Laws

Hi guys, i got this great email and response from another member about Prop firms as well a good way to get around the 25K issue. Just an idea, not investment advice or talking down prop firms.

The member writes:

I've been with 3 or 4 prop firms in the past but don't know if I would ever go with one again. The rules of the game have changed. In order to do things properly and not be guilty of illegally trying to circumvent the securities laws regarding customer accounts, prop firms now need to meet certain requirements, such as not having traders put up their own capital, not giving full payouts of trading profits, etc. Some firms try to finesse these requirements and can get into trouble if they aren't careful. You are also at risk of them going under with your capital as one prop firm did not too long ago. A safer way to get around the $25k day trading requirement might be to open 2 or more small accounts with different brokers and make sure you don't make more than 4 day trades within 5 business days in any one of them. Additional accounts can be IRAs, your spouse can have another, etc...


NYC Trader said...

Stewie-Posted some charts on my blog.Fell free to leave comments.

RCA said...

Pattern day-trading requires more than just making more than 4 trades in 5 days. You are not classified as a pattern day trader unless you are trading in and out of the same security. Etrade sent me this notice a while back:

"The Financial Industry Regulatory Authority(FINRA) has put into place an amendment to Rule 2520 that will impact what the FINRA calls "pattern day traders."

You're considered a pattern day trader if you regularly buy and sell the same security on the same day in a margin account and execute four or more such trades within a period of five business days."

If your trading in and out of a security spans two days, then you are not a day trader. If you limit such daily trades to 3 times every five days, you are not a day trader. If you maintain $25,000 in your account, it doesn't matter if your are classified as a pattern day trader or not.

It seems fairly simple to avoid any scrutiny , extra requirements, or penalties. Having more than one account can be very helpful in this regard.

Stewie said...

Thanks for your input RC.

Shawn said...


Got UNG?

I think you got your capitulation today with reversal coming

Stewie said...

not yet shawn. this could only the start of it.

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