Simplest Way To Get Around The PDT Rule
First, lets identify what PDT means for newer traders who might not even know
what PDT is. PDT stands for pattern day trader and it is a regulatory designation
for traders that execute four or more-day trades during 5 business days while
using a margin trading account. The first thing one can do to be allowed more
than four trades in 5 business days is to keep a balance of at least $25,000 in their
day trading account. Since this is not an easy task for most new traders we will go
over other much easier and tactical options to get around the PDT rule below.
Futures, Crypto and Prop Firm Solutions
There are many ways to get around the pattern day trader rule also known as the
“PDT Rule” from trading crypto to futures that do not fall under PDT and you can
trade daily with small accounts without any issues. There is also the option to use
offshore brokers with high fees or you could get trained by a prop firm and start
trading at the prop firms to get around the PDT issue. The benefit to this is that
you will typically get a professional education but it is not easy to get signed up at
a quality prop firm or so I have heard.
Cash Trading Accounts
But the easiest way one can get around the PDT rule is by trading in a cash
account. The PDT rule only applies to margin accounts or instant settlement
accounts were your funds settle instantly after you close a trade so you can enter
another right away if you chose to do so. However, with a cash account your
funds do not settle instantly rather they take 2 days so the day you traded counts
as day 1 the next day is day 2 and on the following day, your cash is settled and
ready for you to use again. In theory, you can day trade every day with a cash
account as long as you are trading settled cash.
Example:
Here is an example of trading daily in a cash account. Let’s say you have a $5000
cash account you could in theory trade $1000 every single day or you could trade
$2500 Monday and $2500 Tuesday now on Wednesday the $2500 you traded on
Monday has settled and you can trade that $2500 on wed! This is usually the easiest way to get around PDT and still be able to trade daily and it is a very
overlooked strategy.
In Closing
PDT is something most new traders have no idea about until they are flagged by
their broker as a pattern day trader and need to deposit more money into their
day trading account to reach the 25k benchmark to continue trading within that
account. This is why I always put an emphasis on day trading education so that
you know what to expect before you ever trade a single live dollar.