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I am fairly new to this so please forgive what may be simplistic questions. Here's what I know. In order to avoid settlement delays, one must trade in a margin account. A pattern day trader must have a minimum balance of $25K. Here's what I don't know.
For a 3 X leveraged ETF, do you need to keep a minimum of $75K in a margin account ($25K x leverage)?
I won't be using margin, does this matter?
If the $75k is a requirement, is there a way around this?
I read somewhere that most people trading leveraged ETF's don't trade in a margin account. If this is the case, what other account type would they be using?
Appreciate the help with this.
Can you help answer these questions from other members on NexusFi?
No. SEC PDT rule just states that your day trading account must always show a positive
equity of >= $25k. If your day trading account falls below 25k you can
a) deposit fresh funds to restore the SEC minimum;
b) wait 90 days until you can initiate the first new position.
Concerning your leverage question: Leverage isn't part of the SEC PDT rule.
Thank you choke35. Below is an exert from an article in an ETF website. This was apparently enacted in 2009. Sorry, because I am new to this forum, I am unable to give you the link. What are your thoughts? Again, appreciate the help.
Under Rule 2520, such traders using margin accounts were required to put up a daily maintenance requirement of $25,000. With the new FINRA rule, that amount gets multiplied by the same factor of magnification of returns that a particular leveraged ETF uses, according to a notice on the rule FINRA circulated in September 2009.
For example, pattern day traders in margin accounts using ProShares funds that multiply returns by a factor of 2 would have a $50,000 minimum daily maintenance requirement. Such traders favoring Direxion triple-exposure funds would have a $75,000 minimum daily maintenance requirement.
You could get an offshore account, such as Suretrader, as a workaround.
Being located offshore myself, I trade leveraged ETFs using Saxo via CFD, with no PTD restrictions. Admittedly CFDs are not an ideal arrangement, but they meet my requirements for that limited aspect of the trading.
