One day trading rule that many new traders don’t understand is the “pattern day trader” rule or PDT. The Pattern Day Trade (PDT) rule is enforced by the U.S. stock market regulatory body (FINRA). This is a rule for limiting the amount of active day trades a small account trader can make in their stock brokerage account.
It’s meant as a safe guard against overtrading stocks in a one week period. The pattern day trading rule only applies to stock trading and accounts under $25,000.
FINRA rules classify a pattern day trader as anyone who executes four or more day trades inside of five business days and the number of day trades represents over 6% of your total trades in your margin account for the same five business day time period. [1]
For day traders in the U.S. the minimum trading account size required to day trade stocks is $25,000. If the total trading capital in the account falls under that level due to losses or withdrawals then active day trading isn’t fully allowed until a deposit into the account brings it back to $25,000 or more.
Can I day trade 3 times a week?
The PDT rule is enforced individually by each broker separately for their customer’s account, it’s not enforced by regulators. If you have trading accounts with multiple brokers, then each one will allow you three day trades in your account with them. If you have less than $25,000 in your trading account you can only make three day trades a week.
What are the rules on day trading?
Day trading is the method of trading where both entries and exits are taken between the opening and closing of the stock market trading day. For 24-hour financial markets like commodities, forex, and cryptocurrencies, day trading is considered opening and closing a trade inside the one-day time period. Day traders in stocks don’t hold a position overnight, they go to sleep with all their positions from that day closed.
Day trades can last seconds, minutes, hours, or all day long. Day traders attempt to profit from the price movement on intraday charts. Day trading requires screen time with concentration, a focus on real time price action, and the emotional and egoic discipline of quick decision making. A big part of a day traders edge is created by their speed of signal execution.
Can you day trade with less than $25,000?
Yes, you can day trade with less than $25,000 in an account but you would have to limit your day trading to only three trades a week if the trade is closed out the same day. This is not a practical way to day trade as you need the flexibility of a higher amount of trades and more capital to position size each one correctly and make them meaningful while also managing risk.
How much money you need to day trade depends on what you are trying to accomplish and your goals. If you are just learning to day trade and only doing it one day a week you may be able to get by with under $25,000 at first but this is just for practice. To run a real day trading system every day of the week it’s more practical to have at least $30,000 in your day trading account to be able to continue to day trade through drawdowns or losing streaks that would have taken your account under $25,000 if that was your starting point.
How much money do you need to day trade full time?
Trading for a living is a completely different pursuit, too many go in undercapitalized and are doomed from the start. Day trading is a professional endeavor and requires the same level of education and dedication as any other highly competitive field. Day trading for a living requires a large amount of capital to go full time like any other business and the returns are irregular much like being a commissioned sales person.
Day trading is less about trading from a lap top by the pool making easy consistent money and more about taking on the risk along with managing the uncertainty along with the stress and over half the time being rewarded for good trades. Aspiring traders have to understand that you don’t just make money and receive a regular paycheck of profits from day trading, there are also losing trades, losing weeks, and losing months for any real trader. You must be properly capitalized to be able to lose money and still pay your bills on a month to month basis.
Trading for a living is less about going for it with a small amount of capital and more of a serious math problem. Going full time as a day trader where the math doesn’t work will lead to eventual financial and potentially mental ruin. Not having enough trading capital from the start that leads to chasing completely unrealistic high returns is a formula for blowing up your trading account.
A trader risks too much trying to turn a little capital into a lot of returns quickly due to a need to pay bills, living expenses, and eat. Few traders that go full time ever make it, the math just doesn’t work without enough trading capital. The delusion that you can make returns greater than the best traders in the world when you are new is nearly impossible.
The formula for trading for a living is to calculate your total trading capital multiplied by your historical average monthly trading returns to see if it’s equal to or greater than your monthly expenses. You must have a long-term trading return record over multiple market environments to have proof of concept and verification that you can even trade profitably in the first place.
Total Trading Capital x Monthly Return% ≥ Monthly Bills.
Be aware that part of your monthly expenses will also be short-term capital gains taxes that you can pay quarterly or once a year as income tax.
Give yourself a chance to learn and develop a quantified day trading system with an edge before you ever try to go full time day trading for a living. The majority of people will likely be better off trading for capital gains on their capital and compounding it than trying to live off short-term capital gains. However, if your dream is to day trade for a living only research, having enough capital, emotional discipline, and developing a quantified day trading system with an edge stands in your way.
