While the intentions were understandable, the “Pattern Day Trading” rule that applies to stocks and options has limited the ability for small traders to effectively day trade and potentially created a lot of harm, as a result.
This one rule has pushed traders into questionable and disadvantaged prop firm arrangements (of course, if one finds a good firm it would surely be an advantage), to shady off shore brokerages, or into the low probability game of trying to trade large futures contracts with tiny accounts (of course, futures are going to be the best trading product in many situations).
If a trader has less then 25k today, they need to configure their trading rather strategically around the PDT rule. Some of the products not affected by the PDT rule today are futures and options on futures.
As I shared in a recent post, the CME is introducing a new futures contract in May, similar to their popular futures E-mini contract, that will be 1/10th the size known as the E-Micro.
The Small Exchange, created by Donnie Roberts and funded by Tom Sosnoff (former ThinkOrSwim founding partner and former President over futures at TD Ameritrade) may soon be a new regulated futures exchange, if approved by the CFTC, geared for the small traders. While details are still forthcoming, for a one-time $100 membership you can become a lifetime exchange member with 50% reduced trading costs. It sounds similar in spirit to the E-Micros or NADEX. The stated goal is futures product standardization and product sizing appropriate for the independent self-directed trader.
If you sign up for Tastyworks,you can get the $100 fee waived for a limited time. Tastyworks is currently one of the best brokers for “options on futures”. This video explains Tom’s vision for the exchange.
This is certainly on my radar. Of course, the key to whether the The Small Exchange is successful, granted CFTC approval, is going to be access, trade costs, efficiency, and liquidity. While new to the Tastyworks platform (used it for one day only), I think the platform still has to do be improved with an actual DOM and chart trading before it will be a suitable platform for day trading.
The author is passionate about markets. He has developed top ranked futures strategies. His core focus is (1) applying machine learning and developing systematic strategies, and (2) solving the toughest problems of discretionary trading by applying quantitative tools, machine learning, and performance discipline. You can contact the author at firstname.lastname@example.org.
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