Explaining the Pattern Day Trader (PDT) Rule: A Guide for Day Trading Small Accounts and Navigating its Restrictions

by | Jul 17, 2023 | Fidelity IRA | 36 comments

Explaining the Pattern Day Trader (PDT) Rule: A Guide for Day Trading Small Accounts and Navigating its Restrictions




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🔽Time stamps:
1:19 What is Pattern Day Trader Rule (PDT rule)
2:50 Open cash accounts to trade instead of margin accounts
6:30 Open multiple margin accounts to day trade
7:54 Open offshore trading account to avoid PDT rule
9:40 Buy and swing stock overnight
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PDT Rule – Pattern Day Trader Rule: Day Traders with an account under $25,000 can only day trade 3 times within a consecutive 5 day period, if they’re trading a margin account in a US based brokerage.

Four Options to get around the Pattern Day Trader Rule
1. Open a cash account to day trade
Since PDT rule only applies to margin trading accounts, you can open cash accounts to trade with no day trade limitations. The downside is that you cannot short sell stocks in a cash account. And the cash will take 2 days to settle.

2. Open multiple margin accounts to day trade
If you divide your capital into multiple margin accounts, you can have more day trades.

3. Open an offshore trading account
This option isn’t recommended but offshore brokers like Trade Zero International and CMEG do not have the PDT rule limiations for day traders with a small account

4. Buy and swing trades overnight
When to Buy Stocks Overnight? How to Grow a Small Trading Account Under PDT

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How to Get Around the PDT Rule Day Trading Small Account (Pattern Day Trader Rule Explained)

Day trading can be an exciting and potentially lucrative endeavor, but for those with small trading accounts, it can be challenging due to the Pattern Day Trader (PDT) rule. The PDT rule is a regulation put in place by the U.S. Securities and Exchange Commission (SEC) that restricts pattern day trading for traders with accounts under $25,000. This rule can limit the number of trades a trader can make within a specified time frame, making it difficult for small account holders to fully capitalize on trading opportunities. However, there are a few strategies and alternatives to consider when trying to get around the PDT rule.

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1. Focus on swing trading: Instead of day trading, consider swing trading where trades are held for a longer period, usually a few days to a few weeks. Swing trading does not fall under the PDT rule’s restrictions, making it a viable option for small account holders.

2. Trade with a cash account: The PDT rule applies only to margin accounts, not cash accounts. By trading with a cash account, traders can avoid the limitations imposed by the PDT rule. However, it is important to note that with a cash account, one cannot utilize leverage and can only trade available funds.

3. Build up your account: If you are determined to day trade and want to get around the PDT rule, the best approach may be to increase your account balance above $25,000. This will allow you to trade freely without restrictions. You can achieve this by adding additional funds to your account or by growing your account through profitable trades over time.

4. Trade with a prop firm: Proprietary trading firms, also known as prop firms, are popular options for small account holders who want to day trade without being subject to the PDT rule. Prop firms provide traders with the required capital to trade, allowing them to bypass the $25,000 account balance rule. However, it is essential to carefully research and choose a reputable prop firm, as they typically charge fees or require a portion of the profits in return for their services.

5. Diversify into other markets: If you have reached the limit of day trades in the stock market, consider exploring other markets like forex or futures trading. These markets have different rules and regulations and may provide opportunities for additional trades without being subjected to the PDT rule.

See also  Understanding the Pattern Day Trading Rule

6. Educate yourself and implement different strategies: The more you know, the better equipped you will be to make strategic trades. Day trading is not solely based on the number of trades but also on the quality of trades. By learning and implementing different trading strategies, you can maximize the profit potential of each trade, even with the limitations imposed by the PDT rule.

In conclusion, the PDT rule can present challenges for small account holders looking to engage in day trading. However, with careful planning, alternative trading strategies, and consideration of different trading options, traders can navigate around the PDT rule and continue to pursue profitable trading opportunities. Remember to be patient and focus on long-term growth, as building up your account size can eventually allow you to trade freely without restrictions.

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36 Comments

  1. Alison Camp

    I appreciate your video on overnight swing trading. I am literally just beginning on a super small account. I am a single parent working full time (50 hr weeks) and wish to rebuilt my retirement, create multiple streams of income and (hopefully) teach my children to create their own multiple streams of income now… not wait till life screws you over.

  2. Al Caprella

    are you free next Saturday?

  3. Michael Wellner

    Ok I will marry you but you must know ! I don’t work and like to eat a lot of expensive food and only like nice things

  4. james teh

    She is knowledgeable. Great

  5. Maverick Meteor

    What if I want to be a pattern day trader and don't want to avoid the PDT rule? Is there any reason to be afraid of pattern day trading if I do get my account up to 25K? The internet sure wants me to be afraid of anything PDT related. But I don't see how anyone could day trade very successfully without being a pattern day trader. Let's say I do get my account up to 25K and start pattern day trading. Are there any actual penalties (not risks) for doing that? This question seems very unanswered online.

  6. Fallon Brown

    So can you buy a put with cash account

  7. Kaluju Beats

    I love your explanation and just subscribed. Hope you answer this question. I just made a stupid impulse mistake. I have been following this stocks pattern. thought it hit the dip. I bought it, it went down further. Bought more, did it 3 times total of 4 buys. Now i am afraid to sell today. If I sell, will that count as 4 trades?

  8. banger355tw

    I really appreciate this video because I was did mess up by trading (or trying to trade) too often. I called the broker and he explained that I had unsettled funds that I couldn’t trade. I was still a little confused about the thing until I went out to YouTube and caught your video. Hope I didn’t mess up tooo much. But, this video helped me. Thanks. T

  9. Michael Kent

    im an accumulator, i need a trading wife if only i knew where one was….

  10. leosl88

    IB UK CFD doesn't need PDT restriction rules, can trade index nasdaq IBUST100, stocks and ETF

  11. Golstog Golstog

    Question. What is considered one trade?
    Buy and sell = one trade
    Buy and sell = second trade
    Buy and sell = third trade
    Or
    Buy = one trade
    Sell = second trade

    ???

  12. ceci

    so, the PDT rule doesn't apply in Canada?

  13. EnFuego

    PDT and accredited investor status are nothing more than another way for the elites to keep the plebs from threatening their control and power.

  14. A guy named Doug.

    Feel like you're personally attacking me in code words. Going to teach me to "trade" with a small "account" …..

  15. SEV7N

    She’s so cute lol.

  16. kenjihimura79

    Nihao! Hope you will respond on my question. I just saw this video today. I'm studying now to become day trader. I'm in Canada. Is there any restriction here on how many times were buying and selling stock in same day? Thanks

  17. Adirondacks4me

    I can not find the answer to these questions anywhere… 1. I have a margin account with $5000 and I never touch the margin money when trading…. What does a rolling 5 day period mean if I trade 2 or 3 times per day? Can I trade twice a day, day after day with that 5 day period rolling forward subtracting the previous day trades? I thought it was 4 day trades within that 5 day rolling rule with TD Ameritrade/Schwab?

  18. Truckin Forever

    switching to cash as pdt rule bites. I mostly trade options anyways so they settle in one day

  19. Robby Zoom

    you're so ugly

  20. DOUGLAS WHITE

    You can buy puts to short with a cash account, so yes you can short without margin

  21. Casey Brehm

    Very funny analogy! Haha

  22. xithbaby

    PDT rule is for poor people. They don't want poor people to make extra money.

  23. LuckyBamboo

    hello, what about if you place only 3 buys in Monday and hold until next week to sell. Can i still buy more stock in the week or will i violating the PDT RULE if i buy more?

  24. Long Tu

    Many thanks Shay!!!

  25. Oscar Penado

    I m under the PDT rule by Etrade and I hated.

  26. 3 Squirrels & Dog

    This is the 3rd video I’ve watched on PDT and the 1st one I understood how to work around it.

  27. eduardo Rbf

    Another way to get around the pdt rule is to trade futures

  28. Sinver Merlas

    thanks for this! understood PDT rule better. happy to know a way around it

  29. Brian Chirhart

    FINRA recently removed the 90 day time period (10:45). It's now for the life of your account.

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