IB, PDT Rule workaround, CFDs and TWS

[Flavius Cristea 2]

Hello there Bear Bull team!

My name is Flavius and I'm here via Andrew's book. I also had 1 week trial in your chatroom and I am planning to get back on it after at least I have my setup correct.

First of all I would like to send you my warm regards for what you are doing here. There is a lot of work put into those videos and explaining/reviewing trades, and it is nicely and truly done.

I am from Europe and don't have 25k for the PDT rule.  There are not many decent brokers around not based in the US. There is CMEG, but fees would be too much for my small account size (around 2500-3000$) to start with, and moreover I have emailed them 10 days ago with some questions and I didn't get a reply yet.

So what is there to do? I was looking at IB trying to find a way around. Cash account is a no go because of the GVF rule (and also the buying power would be..garbage).

However! Because CFD's are not banned here (but they are in the US) and because they are OTC they don't need to follow the PDT rule. Also leverage is 1:5 (more if you prove you are a professional trader). CFDs have a bad fame overall mainly because of "dirty" brokers who interfere with the order and mainly the speed of the execution/bid-ask spread etc. I asked their support team about it and they have said

"1. The Bid/Ask price of a CFD (on stocks) is going to be exactly the same as the underlying stock as we offer by default DMA (Direct Market Access) on all CFDs.
The speed of execution is the same as for stocks. As part of the DMA model, we will hedge the CFD order immediately in the underlying physical market and the CFD is executed at the price of the edge.
For intraday trading there is no extra fee in trading CFD."

So, I see no difference in trading on margin, or using CFDs on margin. Also it seems the fees are slightly smaller on CFD's. If I am missing something here, please let me know!

I initially started with a crappy, guys, a really crappy broker with a web based platform only. The bid-ask spread on AMD for example is around 5-7 cents. Imagine my surprise when I was seeing your screens and I saw 1 cent bid/ask :D . So I kind of lost some money there...  Yep, I was a moron.

Now I want to spend some time in the simulator, properly. However, since I only have a small amount of money, I cannot afford DAS simulator for 3 to 4 months.  So I am thinking IB's TWS. Now, they have delayed data, so my plan here is to open an account, deposit the cash and then pay for at least the Level 1 data. So what would be 10$ per months inactivity fee + the market data. 

By the way, I am confused about this data delay...  I mean you cannot use the platform at all right? Like there is a 15 minute delay for your order to go through or something? I was thinking to use www.tradingview.com for start, before buying the market data...

To summarise :

*To avoid the PDT rule using a proper broker I would trade CFD's on margin since they have the exact same price/spread/ DMA access as "normal stocks"

*I would use TWS in the simulator to avoid DAS monthly fee. Are there any big disadvantages to TWS vs DAS?

Let me know what you think!

P.S. Special thanks for Andrew for writing such a good book and thus opening my eyes to trading and to this community!

 

 

 

 

[Kasper 13]

I tried out IB's CFDs a few years back and did not like the execution on them. Also, they do not offer CFDs on all stocks which can be troubling when looking for potential plays.

It is very important that you trade with paper money at least for a few months.  The simulator is a good way to learn about the platform and avoid platform related issues.

Hope to see you in the chat room:)

Kasper 

[RTrader 20]

Flavius,

If you want another option, you should consider trading the micro-futures, using the Nasdaq or the SP500. I don't think there are any restrictions on what country you live in either for accounts. You can use the simulator free as well to try it out. Look at Ninjatrader.com 

They are their own broker. I recommend them because of the platform and low cost, and they also have broker level daily loss limits, product limits, and size limits. Meaning it is set at the broker level and is not possible to override w/o a call to them. DAS risk controls are not that useful, all you need to do is log into TWS when you are on tilt and trade away. As a new trader you should focus on execution and process. Don't worry about your costs. Once you get consistent then you can streamline your business by cutting costs.

The micro ES futures have very low risk and you will be trading a professionals market. You will learn a ton from trading futures.

 

Jason

[Flavius Cristea 2]

Thank you all for your replies.

@RTraderI will look into that, my horizon at the moment is limited to stocks and CFD's.

@peterB I understand what you are saying, of course I understand day trading is a business and there are costs involved, I only wanted to lower them while simulating. You didn't caught me o cigs (I don't smoke) or beer (don't drink that much) but man you nailed the kitchenware 😄 

What i find frustrating about TWS is that there is no partial out instant button/hotkey. That reverse position still brings up a dialogue which renders it useless (seems as efective as right click 50% close)

@Kasper Hmm, this is worrysome. From my discussion with them on the email and their youtube presentation they kind of swear the execution is DMA, smart routed like their shares.

The DEMO SYSTEM of TWS is a bit weird, like I don't understand why the execution is so so slow sometimes. Even 20shares of NVDA with MKT order sometimes takes minutes to fill, sometimes it doesn't.  So in my noobish mind, I assume the DEMO is only to understand the interface and one cannot judge the speed of the execution but after I open an account with them and start paper trading, the execution speed will be like in the real world I assume?

P.S. I also tried DAS with that 14 days free trial and I understand why you guys recommendit...

Aaanyway, back to reading Andrew's book for the second time now.

 

cheers all!

[misterchai 8]

On 10/16/2019 at 6:59 PM, Flavius Cristea said:

 

So, I see no difference in trading on margin, or using CFDs on margin. Also it seems the fees are slightly smaller on CFD's. If I am missing something here, please let me know!

 

Hi Flavius,

 

I just looked on IB's website of the various offices that offer CFDs- .uk, .au and .jp

 

Minimum is $1 per ticket. CMEG routed through LAMP is 0.0065c with fees and a 50c ticket minimum. Much better if you want to practice covering with a small account.

I occasionally trade index and commodity CFDs with UK spread betting brokers- their own spread wrapped around the bid/offer is all the commission you pay, and it is fairly competitive, but like you said not at all for individual stocks, which nearly all have an 8-12cent wrap. Too expensive to trade with intra-day.

I would be interested to see what the execution is like with IB's stock CFDs as they sell them as a "DMA model" experience, but as Kasper has said he didn't like the execution. If I have a play around myself I will get back to you.

[Flavius Cristea 2]

@misterchai Hey there mister !

Thanks for reaching out. CMEG fees are confusing me a little bit. I understand that the 0.0065$ / 50cents min. is for BBT members only(?). Their website show up some 3.95$ per trade/0.007share + some extras. However, I emailed them to ask about account opening and the fee structure for BBT members/non BBT members and they haven't replied yet 😞 More than 10 days have passed.

 

!! If you have a go at trying out IB's CFD's to check the execution speed that would be awesome !!

 

@peterB He he, while looking at TWS hotkeys yeah I thought of the same thing, having hotkeys for selling a specific number of shares.  I do have one question...if you are still around this topic. Is there anyway to put the moving averages BEHIND the candlesticks? Somehow it freaks me out seeing those lines crossing on top of all the bars on the chart.  Also, the TWS demo...yes I know it simulates the real thing, but 25 shares of NVDA is nothing for such stock. Plus, I have sent a MKT order to buy @Ask, not a limit one and nothing happens for 2-5 good minutes, even more which is quite peculiar. This does not happen with DAS simulator.

 

Guys, thanks for your time. I know I sound ultra noobish but there is a lot of information to take in besides the actual trading ideas&strategies. 

 

 

Edited October 19, 2019 by Flavius Cristea

[Brendon 146]

 

On 10/16/2019 at 1:10 PM, peterB said:

Trading stocks with PDT is nearly impossible but there is one trader here - Aiman i believe he did that with success but being limited to 3 trades a week will most probably lead you to some ugly bad habits but for the start i would recomend you to take the IB + level1 data and trade in the simulator and try 1 trade with the PDT. Trading stocks instead of CFDs will make your life easier - all the info and education materials around here are about stocks.

Correction, two traders so far 😉 that day traded under the PDT rule.

I consider it a blessing as over trading can be a habit for new traders. I was once looking for ways around the system, using offshore brokers etc. In the end, if you can't pony up 25k to day trade, your life is not stable and really you are not ready to be a full time trader. There is way too much risk if you are that pressed for cash and that will harm your trade mentality. I would follow Aiman and slowly grow a small account, contribute as you can from outside sources as well, to reach 25k. Spend the rest of the week sim trading and following the market, and considering trading a side hobby as you get used to the stress.

Many day traders only take 4-5 trades a day anyway, so 3 a week is not THAT bad. You will inherently be more cautious and pick betters setups and that will pay dividends when your at 25k, you wont go crazy trading everything in sight. 

Or you can take the risk and open an offshore account, worry about fees and tax reporting. Up to you. Trading is about coming back from failure and many need to do that to find out what works for them. 

[Ville 8]

Hey @Flavius Cristea

Check your countries tax rules, as i live in Finland and we can't deduct losses from CFD's in our taxes. Although they do take taxes out from profits from CFD 😄  If you can't deduct losses it's a real dealbreaker!

-Ville

 

[Brendon 146]

15 minutes ago, peterB said:

the problem with PDT is that you need to be extremely effective otherwise it will take you too much time to build up. if you are not sucessfull there come other psychlogical challenges as well. the other problem is not partialling out so you need a very strict rules on covering at least 1:2 R

Well personally I would not rely solely on gains to build up your account, as long as you are profitable in the long run, you can contribute to get above PTD quicker. Or replenish your account if you are still learning.