How to Avoid Mistakes With the Pattern Day Trader Rule

    Pattern day traders are stock traders who buy and sell their stock within the same day.  This kind of trading can be helpful especially for people who deal in large sums of money. This is because; small fluctuations in stock prices can lead to big profits.  Unfortunately, pattern day traders are subjected to certain rules that regulate how they trade. Unfortunately, if you conduct more than 4 transactions within 5 days, you will be subjected to pattern day rules. The good thing is that, you can still be able to engage in day trading and still avoid the repercussions that come with being declared a pattern day trader. Below, we will look at the different ways of avoiding the pattern day trader rule.  

    Go for a cash account

    Many pattern day traders who suffer from the PDT rule normally use a margin account. When they hit more than 4 transactions in 5 days, their accounts are automatically limited when their balance fall below $25,000. Consequently, you will have to deposit more funds so as to have the account reactivated. The good news is that, you can avoid the pattern day trader rule by doing your transactions using a cash account. Cash accounts are not subjected to this rule as they are privately funded without credit.  

    Open multiple brokerage accounts

    Another way to beat the pattern day trader rule is by operating multiple brokerage accounts. Such accounts will help cut down on the number of registered transactions within 5 consecutive day period. As a result, you will not be susceptible to the PDT rule since none of your account will have shown more than 4 transactions in 5 days. This is one of the methods that many payday traders use in order to avoid the rule but still be able to transact beyond the set limits.  

    Do swing trades

    According to https://stockstotrade.com/pattern-day-trader-avoid-classified-one/, one of the most reliable ways of beating the pattern day trader rule is doing some swing trades. In this method, traders normally delay their trade for several days so that they cannot be registered as pattern day traders. If you are day trading but find that there are many obstacles along the way, it is advisable to go for swing trade. Here, you can buy stock one minute before the stock market closes and sell in the following business day when the stock reopens. If you do that right, the rules that apply to a pattern day trader will not apply to you. However, this method requires you to be very sharp at predicting stock so that you can return a profit when you get to sell your shares in the following business day.

    Get a cash account

    As we said above, PDT rule normally applies to those with a margin account.  However, if you keep your trading account balance above $25,000, you will be able to avoid the PDT rule. The problem comes when you balance falls to below $25,000 as your account gets limited until you top up funds to surpass the threshold. The solution to this problem is to just trade with a cash account. Since you are the one funding the account, you can trade for as many times as you wish without any penalties. Day traders are usually advised to trade using their own cash accounts since the account cannot be limited even when they run below the threshold of $25,000.  

    Use a proprietary trading firm

    Another method of avoiding the pattern day rule is through the use of a proprietary trading firm. Such firms are very important for they can trade on your behalf. However, you need to engage with them either virtually or physically to complete the trade.  It is through such proxies that you can trade for as many times as you want without risking being labeled as a pattern day trader. However, you need to find reliable proprietary firms in the market so that you can get the maximum value from your agreement.  When you do that, you will not only be assured avoiding the PDT rule but also, receive the profit that you deserve.

    Get a SureTrader account

    SureTrader is an online company from Bahamas that enables people to day trade without facing the penalties that come with the practice. If you plan to work as a day trader, you should consider getting an account with this company and through it, you will be able to bypass the 4 transactions within 5 days limitation.  

    Although day trading can generate you a lot of money, it comes with rules that traders have to adhere to.  However, you can find ways of bypassing these rules and continue to day trade without any limitation. We hope that the above points can go a long way in helping you avoid the pattern day trader rule.

    Tags:

    • Show Comments (0)

    You May Also Like

    Subscribe!