The PDT Rule and the Challenge You Face

The pattern day trader rule is one of those regulatory designations designed to define a trader who conducts four or more day trades within a five business day period. You do this and you get the “privilege” of being flagged as a PDT by your broker.

You are then required to hold at least $25,000 in your margin account. If your account falls below, you can’t day trade until you get your balance back up.

Pretty straightforward, unless you don’t have $25k to drop into your account because you are just started out as a trader. Or you just want to dabble with a few thousand dollars.

Well, you are not alone.

We’ve all been there at some point. Sometimes by choice, meaning we get that trading comes with risk, and well, we don’t want to risk our money. Better yet, we don’t want to give ourselves the temptation to fall into situations that could cause us to lose more money than we originally planned.

Well, not many people come up with a plan. If you don’t come to the market with enough capital. Enough as in, to meet the PDT at a bare minimum, then one could argue there could be other areas lacking a significant but necessary plan.

A plan for a trading strategy. A methodology. A process by which you manage your size, your entries, and exits, your stops, and your max losses. All of these things are tough to manage consistently by seasoned traders at times, so imagine someone just getting started, who already is disadvantaged with less capital.

So we can all agree, the PDT is a challenge you face as a trader because it frankly limits your options and ability to trade. Granted if you are trading individual stocks, you could always hold the stocks for one day or more. You could even trade options with a smaller account.

Nowadays you could even find an offshore broker who actually will allow you to day trade with less than $25k. It’s not hard…just google it and you’ll figure it out. Or you could go the prop firm route.

But sometimes challenges have their reasons, and the PDT despite it being a barrier to entry and also a barometer for many traders to measure progress, and for other traders, a hurdle, or hoop they must try and jump through or achieve as a “rite of passage” so to speak, might possibly actually help more than it seemingly hurts.

Sure, it might be protecting the interests of new traders in the grand scheme of things. Or perhaps it’s just a scheme itself. At least that’s what you can view if you aren’t at that level, as I’ve found once I surpassed the PDT limitations and never looked back, I didn’t care at all.

But in the early days, I certainly was hovering around a $25,500 balance and crossing our fingers and toes that I wouldn’t take a significant loss.

You’ve got to stay in the game of trading. Don’t lose all your chips. Practice solid risk management and protect your capital at all times.