Day trading can be a very rough, especially for beginners, or someone who has a very modest sum to work with. When I first started trading I hit and missed……A LOT. The way that the PDT rule is limiting is when you are making ok or break even trades during the week and then BOOM!!! A stock hits the scanner and is running multiple dollars quickly, but you are all out of day trades. So, frustratingly you cant even attempt to recover your losses as you watch that stock climb from the $2 area to $12. You could choose to hold the stock over night and hope that it doesn’t crash and burn like 95% of the other low float stocks.
If you have experienced this problem don’t worry you are not alone because the story above you is my experience. It was frustrating, but I didn’t know what to do. After doing some research I found that there are ways to get around that pesky limiting rule. Before we get into that, lets go over why the PDT was created.
The Pattern Day Trading rule is a U.S law that states anyone with less that $25,000 in their account is restricted to making only 4 or more round trip (day trades) in a rolling 5 day period. It was created in order to stop inexperienced traders from blowing up their account (loose all their money) in the first week they get into the market. It kind of makes sense, and makes me wonder how many people enter the stock market and have no idea about the concept of risk management……….im sure its more than I would be willing to believe.
It isn’t all bad, and being even a break even trader will take time. You really can’t expidite the lessons trading will teach you over the long term. If you are break even or even in the green after a couple of months day trading, but still haven’t croseed the 25k mark then these suggestions may help.
Offshore Brokerage There are a few offshore brokerages out there that allow US customers to trade stocks, and not have to abide by the Pattern Day trade Rule. It may seem strange that you have to go offshore to trade and it will be up to you to determine if it’s a good fit. Something else to consider is that wiring money to offshore brokerages can come with higher than normal fees (I think around $30). Lets take a look at some options.
SURETRADER This is one of the most known offshore brokerage services day traders use to get around the PDT. They are based in the Bahamas. One of the biggest complaints among traders is that their customer service is subpar. There have also been some traders who claim some buggy glitching in the trading software, but then others say they have traded with SureTrader with little to no issues. Well Let’s break down the numbers!
- Commissions – $.01 per share with a minimum of $4.95 per trade if you trade 0-250 trades per month. Their commissions are on a tiered system meaning the more you trade the less you pay- per trade in commissions.
- Software – SureTrader Desktop is free, SureTrader Pro is $49/month. I have traded their software and it was actually pretty solid. Their Pro level is a Direct Access Software, has really great charting and has a Hotkey functions.
- Margin call fees – $25
- Margin Account Requirement – $500 (also minimum deposit)
- Margin Leverage – 6 to 1 (so your $500 becomes $3000 buying power)
- Overnight Margin leverage – 2 to 1 ( this is important because if you bought with 6 to 1 leverage during the day and decide to hold over night you may receive a margin call on your position because you will only have $1000 of buying power after hours.
- Inactivity Fee – $50 for accounts that have less than 15 trades per quarter.
SURETRADER CONCLUSION : All in all, this is not a bad brokerage and would serve well as a small day traders starting point around the PDT. They have great trading software as well as hotkeys functions for quick entry and exit. Their commissions are a little steep and, based on reviews should have better customer service. If you can get over having your money offshore and the customer service issues this could be the broker for you. If you would like to check them or use a demo of their trading software click the link www.suretrader.com.
CMEG GROUP : This brokerage is located in port of Spain and has a pretty high reputation. They have been in business for a few years and have had some pretty great reviews on YouTube! I made sure that this broker will allow for U.S Citizens to open an account before writing this as another broker TradeZero had mixed info. Let’s break CMEG down:
They offer a pretty competitive rate for stock trading as seen in the diagram above. They also have pretty cheap account fees seen in the diagram below.
CMEG has three types of accounts for different kind of traders. They have a standard account, an active account, and a fund manager account. For day trading the active account has some great characteristics geared towards us active day traders. No PDT rule and they offer 6 to 1 leverage. account minimum to open a margin account is $500.
CMEG also has similar software that you would find at other brokerages that any active trader would be happy to use. They have an Elite trading software, DAS trader (same as suretrader and not a bad software), and they have Sterling Trader. All of these platforms would suite the active trader. I like the Elite Pro and the DAS trader personally as they have access to Level II and hotkey functions that are a necessity for day trading. Here’s the kicker….the pricing for the software is a little steep.
- Standard account software – $25/m Will be reduced after paying $250 in commissions
- Elite trader sterling – $99/m will be reduced after paying $499 in comissions
- Elite trader pro – $115/m (ouch) will be reduced after paying $650+ in comissions
Shorting stocks will be hit or miss as far as I can tell from forums and reviews but it looks like your odds will be better than TD Ameritrade!
CMEG Conclusion : This looks like a great broker and would fit any day traders needs. If you can get past the fees that look like they add up, than this could be the broker for you. With 6 to 1 leverage and a great strategy you may not care very much for the fees but if you are a new trader those fees could hurt a little more.
The only other real option for avoiding the Pattern Day Trading rule if you are under 25K is to operate out of a cash account. This would be optimal if you had a decent enough amount to be able to split into two accounts to avoid having to wait out the T+2 rule. The T+2 rule means that non margin trades will take 2 business days to clear funds so any cash funds traded will not be added back into your buying power until that time has passed. Let’s say you had $10,000, you could split it into two accounts with $5,000 in each. One day you could trade with one account and the second account the next day. By the time the funds cleared you would be able to trade the first account again.
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Do you plan to try any of these offshore brokers out?
Actually thinking about trying out trade zero in the next few weeks!!
Just finished going through the application for Trade Zero and they do not allow US residents to open accounts, but I have found another brokerage that sounds like it’s just as good!