Many of the emails about Prop Trading I received where to say, thank you for the information that they had no idea about.
Others told me how they had been scammed or mislead.
And there were many questions to ask, why is there a Pattern Day Trader (PDT) Rule, and how did it start?
Politicians believe that they are smarter than the rest of us.
And when an event happens that raises public awareness that they can utilize as an excuse to protect us from ourselves, they jump on board quickly.
In the mid-90s, as the Internet became available to the masses and the ability to execute trades by individuals without brokers, active trading became popular in the early stages of so-called professional trading.
It was a Business that Led to Retail Prop Trading and the Pattern Day Trader Rule
At that time, individuals would pay a "seat charge" for the ability to sit at a computer screen in an office and place trades on the Small Order Execution System or what was known as SOES. And retail traders were referred to as SOES Bandits.
Business people took advantage of this time to open offices, charge seat charges, and collect commissions. A well-known firm at the time called ALL-Tech Investment was one of the many offices individuals could trade at.
Then, and today, trading offices required what they viewed as trading education for a fee. These firms taught individuals how to trade by reading a level II screen.
Some still do today, even though it has a high tendency to a quick death to your financial account.
Another firm called Momentum Securities, which Online Trading Academy was affiliated with, taught trading by showing people how to press buttons on software to place trades.
These trading offices generated commissions for the owner. It's the same today.
Certainly, it wasn't fair to the misled individual about what active trading required. However, the business people running the offices had no idea either; they were not traders.
The Pattern Day Trader Rule Evolved from a Mass Shooting
The PDT evolved from a mass shooting that occurred in Atlanta in 1999.
A trader named Mark Barton had incurred large losses and believed the trading firm and individuals working there were at fault for his losses.
Barton went into the offices of All-Tech and Momentum, shooting and killing nine people and wounding 12 others.
Barton then murdered his wife and two children. Later in the day, Barton shot himself.
The killings led regulators to create the PDT to make sure individuals would be "Professional Traders" by taking a test before being allowed to utilize a large amount of leverage to trade.
The PDT rule is ridiculous since it does nothing to educate someone on how to trade or control risk. So, why a PDT for trading stocks?
Individuals can open up a futures brokerage account with less than $1000 and day trade to their heart's content. Why stock traders are singled out, I can only point to the event in 1999.
Like any profession, Active investing and trading requires education based on a method that includes money management.
There is excellent education and live trades each day in the Master Trader Green Room. Take a Trial Here Today.
All the Best,
Managing Director Master Trader.