Forex and the Pattern Day Trader Rule

(Click on the quote to see the original post regarding the elimination of the uptick rule)

They are making progress :), now for the elimination of the pattern day-trader rule. It amazes me how they can require 25k minimum account balance to day-trade stocks but you can trade much more highly leveraged markets such as Futures and Forex with as little as $250? I thought the entire purpose for the pattern day-trader rule was to protect people from blowing out their entire savings? Didn't they impose that law after many "traders" shot up daytrading boutiques? I wonder who they are really trying to protect???? Just my 2 cents. Glad to see that they reversed the uptick rule. Good post! - Dave

I have often thought the same thing! It makes no sense to me because I think that the easiest market to learn to trade is in securities, and yet that is now one of the most difficult for new traders to participate in! This ease is really made possible by how cheap commissions are on securities now! A new trader can pay just $1 in commissions and learn to trade by risking only $5/trade by just taking small lots until they catch on and work out a system that suits their personality. They do NOT need $30k to do this!!! (I say $30k to have padding so as to not slip under the $25k level as easily, which is the cut-off level to have a margin account for daytrading and most brokers will make you have it even if you trade cash only.)

They can also focus on very specific sets of criteria by focusing on things such as news and momentum driven stocks which are influenced to a lesser degree by the overall market, whereas if you wish to trade FX or futures you must have a much larger repetoire of patterns and a much greater understanding of overall market dynamics to be active enough to have any real success! Learning to trade options is then even more difficult and there is even more to know and understand trading them than just the straight securities! The only thing that I wish is that they would make taxes as easy to handle on stocks as on futures!

At any rate, I agree completely and it really hits a nerve when I see how pushy all these companies are when trying to get new traders into the FX market. Yes, I do think it's becoming a bit less... umm... questionable... since the liquidity is leading to greater transparency and the need for many firms to alter their business practices, but it is still not where I would recommend most traders begin.

Unfortunately, it has occurred to me that I am going to have to start addressing just these types of traders since that is exactly what the hot market is right now. While my style can be translated easily to the Forex market, the risk practices that are endorsed by that sector still leaves me feeling "dirty" by association so I haven't even put out any publications on how to apply my system to Forex yet since I am nervous about the implications that I could be considered to support such insanity.

If a trader understands the risk and doesn't go in it with the assumptions that all of that margin is a good thing and actually approaches it like they would any other market, then I am starting to have more confidence in where that marketplace is going, but I feel like the girl sitting next to the lake that is freezing over while others are out there testing the ice to see if it's really safe to skate on!

In the meantime... who do we need to pay off to get that pattern day trader rule revoked...