By: Larry MacDonald
Is the Toronto Stock Exchange (TSX) becoming a haven for U.S. and Canadian day traders? A comment on the tipster.ca blog gave pause for thought: “I … momentum trade stocks on the TSX, mostly to avoid the day trade rules of the US,” it went.
I asked the blogger for more details. He said U.S. law requires a minimum of $25,000 in the brokerage account to day trade. If you have more than this minimum, fine: you can day trade on U.S. exchanges in a margin account. If you have less, “they allow 4 day trades before they shut your trading down … only allowing you to exit positions.” Trading can resume after a certain period of time. Documents on the Internet confirm the restrictions.
The changes were passed back in 2001, so maybe some of you out there already knew this. But I did not (or had forgotten it). One thing you may not know, though, is that some brokers apparently enforce the rule rigorously while others do not, according to tipster.ca.
One wonders if the greater presence of smaller day traders has imparted more “noise” to the prices of stocks listed on the TSX as opposed to U.S. exchanges. Could this be a publishable research paper for some academic to write up?
3 Responses to “ The TSX and day traders ”
That would be an interesting paper to read. I’d also be interested in knowing if the average number of shares per trade has steadily gone down (I’m guessing yes), and if we can separate all trades into deciles based on shares per trade and just look at the smallest decile (smallest trades potentially representing individual investors and day traders) to see how the volume of those trades looks in relation to market volatility – if there is something there I nominate that it be called the MacDonald ratio.
By WhereDoesAllMyMoneyGo.com on Aug 21, 2008
Preet
LOL. You are too kind. Actually, with your value-added, we should call it the Banerjee-MacDonald ratio. Maybe even add a third name for the person who gets the data bases and does the number crunching.
By Larry MacDonald on Aug 21, 2008