As its name suggests, no PDT brokers are one of the best ways to get around the Pattern Day Trader (PDT) Rule, which was established in 2001 by the Financial Industry Regulatory Authority (FINRA) with the United States Securities and Exchange Commission (SEC). Since then, this regulation has been a huge problem for the majority of beginner traders, most of whom misunderstand what it entails or are unable to meet its requirements.
In the simplest of terms, the PDT Rule requires day traders to always have a minimum of $25,000 in their margin accounts if they’re seeking to trade more than three times within a consecutive five-day period. Once a trader’s account falls below this balance, they won’t be allowed to execute any trades until they get it back up.
Understandably, the PDT Rule is rather restricting, especially for traders who can’t afford to park the required amount in their account. Because of this, many of them choose to work with brokerage firms who aren’t regulated by the SEC and FINRA, which means that they aren’t subject to any of the rules that they impose.
These brokers may be risky due to how unregulated they are but there’s no denying that they’re one of the best choices for day traders unable to meet the PDT Rule.
If you do decide to go with them, though, then it’s important that you have an overview of their services, as well as their advantages and disadvantages. Not only would this protect your trades and finances, but it will also allow you to gain more insight into how they operate as brokers.
With that, let’s dive into the two most well-known no PDT brokers.
Capital Markets Elite Group (CMEG)
Launched in 2013, this no PDT broker is insured by the Lloyds Bank of London, a financial institution that has been in business for over 330 years, which goes to show how legitimate CMEG is. Since its inception, it has gone on to be a formidable force in the industry, dominating the competition with nearly thousands of people executing trades on their platform.
CMEG has its main headquarters in Trinidad and Tobago so they don’t abide by regulations set by the United States, nor are they a member of the Securities Investor Protection Corporation (SIPC). Naturally, these circumstances have a slew of pros and cons.
Before getting into that, however, let’s first take a look at the various services that CMEG offers.
The firm’s investment advisory program is named Managed Portfolios and as the name suggests, it offers four different portfolio types: Core, Conservative, Moderate, and Aggressive. Those who sign up under this program are assigned a financial advisor, which is undoubtedly a huge advantage to beginner and novice traders. However, it’s important to note that an Exchange-Traded Fund (ETF) is the primary investment option for all four types.
Day traders working with CMEG are given margin accounts that need just $500 – a huge reduction from the amount that the PDT Rule requires.
A lot of traders opt to operate with CMEG because of their quick execution, as well as the margins and trades they offer. At just $2.95, trades with this no PDT broker are incredibly cheap when compared to other firms and the minimum $500 gives an automatic 4:1 margin whereas parking an amount above $2,500 instantly gets traders a 6:1 margin.
On the other hand, the firm’s customer support is reportedly less than stellar, although they do speak English as this is the official language of Trinidad and Tobago. The country’s regulations – or lack thereof – are also a bit concerning so those trading with CMEG should undoubtedly be aware of the risks they pose.
To add to that, day trading with this broker can only be done in an active account, and doing so incurs fees and software charges, which can be a bit steep and exorbitant, particularly for those trading only occasionally or part-time.
Headquartered in the Bahamas and regulated by the country’s Securities Commission, TradeZero was launched in 2015 and boasts of policies with the Lloyds Bank of London, as well as with the Bahamas First General, which the AM Best Company has rated A- or excellent.
What sets TradeZero apart from its competitors is the large list of services that it offers, which includes stocks, warrants, options, and ETFs. Besides equity trading on major exchanges in the United States, the firm also allows clients to operate in the over-the-counter marketplace.
This broker is among the top choices for day traders due to the number of various services and features that they provide them with. In addition to the absence of the PDT Rule, traders are also allowed access to margin, direct access routing, Level II quotes, short locates, and a professional-level desktop platform. However, TradeZone does impose a $500 account minimum for those looking to take advantage of these privileges.
Perhaps the biggest disadvantage with TradeZero, though, is their nationality policies; the firm rejects applicants who are citizens and residents of the United States and strangely enough, the Bahamas. Moreover, trading accounts can’t be funded using the Automated Clearing House (ACH), a network coordinating electronic transfers between banks.
Both CMEG and TradeZero are great options for day traders looking to get around the PDT Rule although they each come with their own set of pros and cons. With this, it’s clear that those looking to execute their trades with these platforms should first evaluate the level of risk that they’re willing to take, as well as what benefits they want to get out of each no PDT broker.