Pattern Day Trading Rules
What is the pattern day trading rule, how do you get around it?
If you’re a trader in the stock market, you’ve probably heard about PDT. This is the acronym for Pattern Day Trader. According to the definition of the Securities and Exchange Commission, PDT refers to the trader that executes four or more trades in a span of five days. A margin account is required, and the day trades should be at least 6% or trading activity of the customer within the 5-day period. Once you decide to become a PDT, you should be prepared to face the potential intraday and day trading risks. With the right techniques, you can also reap great rewards. Such rule only applies to margin accounts and not the cash accounts. There are special rules that you have to follow and one of the most important is maintaining a $25,000 equity balance. Before the day trading activities, the equity balance should already be deposited in the marginal account. If the balance goes down the limit, you will receive a margin call.
Cons of the PDT Pattern Day Tradng Rules
When this happens, you must restore the equity balance through marginable equities or cash deposit in five days. By following the rules, you will be able to benefit greatly from being pattern day trader. Just in case you are unable to maintain the $25,000 limit on the margin, you should consider joining prop firms. This is a good way to bypass the rules that a PDT must follow.
Why its important to follow day trading rules
You need to be aware that these firms are really controversial. In fact, prop firms get a lot of negative opinions. There are several prop firms in the market and if you want to tie up with them, you will have to do your homework. Some of the firms will allow you to trade equities or anything that you prefer. Most of the firms will not allow traders to hold overnight positions. Through professional leverage, you can expect to make more money.
The leverage type offered by firms will vary. Fixed leverage is the most common offer of the prop firms although there are those that offer intra-day leverage. As a pattern day trader, you will have $25,000 in the marginal account. Daily swings may range from 1,000 to 2,000 and the prop firm will not care much on the leverage you’re using to get the swings. There is a need to enact on the position or share limits if you dropped 5,000 in one day!
If you want to get passed the Pattern Day Trading rules, you need to take advantage of prop firms. The 5,000 to 10,000 equity shops are great alternatives which allow you to engage in scalping or pairing the trade equities. You can achieve your short and long term goals with ease. When you’re working with a prop firm, you get to hold positions over the long term and at the same time, you can still engage in day trading actively. You can explore on futures scalping, options, and stock trading. Learn the basics and you can go a long way. Making money in the stock market is no joke. Work hard and you will succeed!
Using the latest technology, im able to provide all my traders with access to my desktop in real time, explain what I see on my charts real time. My students benefit from being able to ask questions on the fly while being in the room together. Everyone is able to exchange ideas in a group setting and improve their profitablity as a trader.
Day trading is extremely risky. Never risk money that you cannot afford to completely lose.
