Cash account to avoid pattern day trading rule?

This Robinhood page says that PDT rules do not apply to cash accounts, and that it is possible to day trade with them: Pattern day trading | Robinhood

Is Alpaca offering or planning to offer cash accounts?

@Reto4 The day trading rules do only apply to margin accounts. One can day trade in a cash account. However, there is a caveat. In a cash account, all proceeds from sales have a 2 day settle time (T+2). So one could day trade but not much. Consider if one had $1000 in an account. One could buy and sell $500 of AAPL but only do that 2 times in a day (ie the proceeds from sales wouldn’t be available for 2 days). Moreover, if one did that, they wouldn’t be able to trade the following day at all.

Cash accounts are on the roadmap but not this year.

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@Dan_Whitnable_Alpaca Thank you for the answer!

Indeed, I also read about that “Regulation-T” limitation shortly after posting, which make cash accounts useless as well (for my intended purpose anyway).

I am confused, what are all the other non-US people doing that have these requirements?

  • non-US person
  • < $25’000 capital for trading
  • 5+ trades / day
  • trade stock (equity) CFDs
  • go long or short (buy & sell)
  • API access
  • zero comission (except 2ct / US share)
  • competitive spread
  • (don’t care about leverage)

I don’t think Alpaca has a solution currently, because they also apply the PDT rule to non-US customers, right?

If I understand correctly, these requirements force me to look for a broker that is not regulated by FINRA?

@Reto4 All trades of US exchange traded securities are regulated by the SEC and FINRA. Therefore all traders are required to follow SEC rules including day trading rules. To trade US stocks, brokers must be a ember of FINRA.

About day trading, one can place as many trades as one wants per day (eg your requirement to trade 5+ trades / day). There is no restriction on that. One simply cannot buy, and then sell, the same stock in a day. That is a day trade.

As noted earlier, day trade restrictions only apply to margin accounts. One can day trade as often as one wishes in a cash account. The caveat however, again as noted above, is cash accounts require a 2 day settle time for proceeds from sales. One can buy and sell the same stock in a day, but one will not have immediate funds from that sale to buy again for 2 days. Some brokers offer cash accounts, but unfortunately Alpaca does not.

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With a cash account, let’s say someone want to make 1 trade per day, every single day using their full account balance.

$10,000 account
On Monday I sell $10,000 worth of AMZN to purchase $10,000 of AAPL
On Tuesday I sell all shares of AAPL to purchase $10,000 of TSLA
On Wednesday, I sell all TSLA shares to purchase $10,000 of GOOG

In this scenario, I would incur a good faith violation, correct? Because I used the proceeds of a sale to purchase another security and then sold the newly purchased security before the original funds used to make that purchased had settled? Or am I incorrect?

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@jkozlow3 Correct. What one would need to do is this.

start with $10,000 equity. All AMZN (ie no cash)

  • Monday: sell $10,000 worth of AMZN
  • wait 2 days for proceeds to settle
  • Wednesday: purchase $10,000 of AAPL
  • Thursday: sell all shares of AAPL to purchase $10,000 of TSLA
  • wait 2 days for proceeds to settle
  • Monday: sell all TSLA shares to purchase $10,000 of GOOG

@Dan_Whitnable_Alpaca Thank you, yes, that is how I understood your first reply. So, with less than $ 25’000 it is not possible to run for example scalping algorithms on Alpaca that buy and sell multiple times per day.

(comment not directed at Alpaca, but it strikes me as ironic that the very rule intended to protect small retail investors pushes them towards less regulated foreign brokers)

@Reto4 You made the comment “.…pushes them towards less regulated foreign brokers”. One cannot trade on a US exchange unless it is through a broker which is a member of FINRA and regulated by the SEC. Foreign brokers often work through a FINRA member broker, but then they must abide by the same FINRA rules. If one wants to trade stocks on US exchanges then the same rules apply to everyone.

One can always trade on non-US exchanges which of course aren’t regulated by the US SEC. However, then one can only directly trade non-US stocks.

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@Dan_Whitnable_Alpaca Thank you for your input. I am just learning about all of this. I am confused, this IG page seems to say the opposite: Pattern Day Trading Rule: Does it Apply in the UK? | IG International

The page is unfortunately not specific about whether this applies to stocks, stock CFDs, or which exchanges.

@Reto4 Notice the wording on the IG page “does not apply…if your trading broker is not regulated by FINRA.”. However, to trade stocks on US exchanges, and other US trading venues, one must be a member of, and therefore regulated by, FINRA. Here is how the SEC states it

Section 15(a)(1) of the Act generally makes it unlawful for any broker or dealer to use the mails (or any other means of interstate commerce, such as the telephone, facsimiles, or the Internet) to “effect any transactions in, or to induce or attempt to induce the purchase or sale of, any security” unless that broker or dealer is registered with the Commission in accordance with Section 15(b) of the Act.

More specifics can be found on this SEC page.

So, the SEC/FINRA rules do not apply if one is trading on a non-US exchange (eg the London Stock Exchange) and your broker doesn’t need to be a member of FINRA. The issue is the majority of US stocks only trade on US exchanges. Put a different way, only a small number of, typically very large, companies list their shares on multiple exchanges. There are other ways to indirectly trade foreign company shares. In the US, many non-US companies are traded as American Depository Receipts (ADRs). Similarly, in the UK, many non-UK companies are traded as a CREST Depository Interest (CDI). AAPL for example trades as a CDI with a symbol of OR2V on the London Stock Exchange. In either case, one can typically trade only a small number of US stocks on non-US exchanges (ie most US companies do not list on multiple exchanges or are indirectly traded via a CDI or similar). That all said, one could open an account with a UK broker and ‘day trade’ OR2V on the London Stock Exchange which would sort of be like trading AAPL on a US exchange.

Does that help?

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@Dan_Whitnable_Alpaca Thanks a lot for providing these references!

I do get your arguments, but to be honest, it causes me to now be very reluctant to believe anything written or said by any broker about the PDT rule.

I find it hard to believe that such big brokers like IG would not mention that important distinction. I recently opened accounts with half a dozen brokers. I emailed FlowBank’s support last week and asked them if the PDT applies to me, and they said, no, it doesn’t. They offer both stocks and stock CFDs. The answer (like IG’s page) didn’t specify exactly which products or exchanges we were talking about (and I wasn’t able to frame my question specific enough at the time). With that information I would have charged headlong into violating the PDT rule.

One thing I am pretty sure by now is that trading stock CFDs with a non-US broker kind of allows day trading of US-stocks, without actually ever really owning them. CFDs are not available in the US, I believe.

CFDs (contracts for difference) seem to be the main way to “indirectly” trade US stocks outside of the US.

@Reto4 I wouldn’t be too critical of brokers specifically regarding PDT rules. They are answering the question honestly and simply, but with built in assumptions.

Here is an example, but reversed. If someone asked Alpaca “do the trading regulations in India apply to Alpaca” the answer would be a simple “no”. One can open an Alpaca account and not be subject to any trading restrictions imposed by Indian authorities. But the reason is only because Alpaca doesn’t do any trading on the Indian stock exchanges. The ‘built in’ assumption is you aren’t trading on the Indian stock exchanges. That is sort of the 800 pound gorilla in the room. It’s assumed to be so obvious it’s not stated.

Perhaps the better way to question IG or FlowBank, would be to choose a specific equity. Ask them, for example, “do PDT rules apply to me when I trade AAPL”. Their answer will then be different. They would probably respond “you cannot trade AAPL with us, however there are some trading instruments which may offer similar characteristics to directly trading AAPL. Those you can day trade”.

As you stated, one isn’t really owning an actual share of AAPL by trading these other instruments. One however, needs to be aware of the specific details associated with each instrument being traded and determine if it’s appropriate. As an example in the US, American Depository Receipts (ADRs) are instruments to trade non-US stocks. While they generally follow the price of the underlying stock, the price of an ADR is affected by the movements of both the company’s local share price and the exchange rate against the U.S. dollar. So, there can be instances where the stock goes up but the ADR goes down. Additionally, most ADRs impose a periodic service fee of $0.02 per share every 3 months. Those are just some examples of how trading an actual stock (eg AAPL) can be different than trading a derivative instrument.


@Dan_Whitnable_Alpaca I agree, but I do wish brokers would make the effort and be more specific. Most non-US brokers I looked at offer both US stocks and US stock CFDs (and sometimes they use the same symbol for both products). It takes a lot of time to dig through the smallprint and so far I was not able to determine which product or exchange they were referring to in their statements about the PDT rule.

Anyway, thank you very much for your time! Hopefully I will soon rise above the sub 25k club and come back to Alpaca :sweat_smile:. In the meantime I will enjoy your market data service offering.

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