Pattern Day Trader Rule Explained

Pattern Day Trader Rule
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The Pattern Day Trader rule requires that you have at least $25,000 in your trading account if you are day trading.

The tricky part is that you could trigger this rule even if you're only swing trading,

So in this video, I'll show you what the pattern day trader rule is, how you can trigger it, even if it's accidentally, what happens when you trigger it, and how you can avoid it.

So what is the pattern day trader rule? Now, according to FINRA, who set the rule, a pattern day trader is a trader if you execute 4 or more day trades in 5 trading days.

If you execute 4 or more day trades in 5 trading days, then you're being flagged as a pattern day trader.

So a day trade is a trade that you open and close during a trading day.

Now, very, very important: this whole rule only applies to stocks and options. So it does not apply to futures, forex, or to binary options.

Let's say that we enter a trade tomorrow and it hits the profit target or stop loss on the same day. This would be another strike, because now we are also entering and exiting during a trading day.

Well, what happens when you trigger this rule?

If you have more than $25,000 in your account, nothing, because it doesn't matter, because according to the pattern day trader rule if you are a pattern day trader, then you need to have $25,000 in your account.

Now if you don't, then you will be restricted to trade on a cash basis only for 90 days.

See, as a day trader, you need a margin account, and when you trigger the pattern day trader rule and cannot put $25,000 in there, this means that now you are restricted to trading with cash only.

So let's say you put $20,000 in an account, and this means if you put it into a margin account, that you get $40,000 in buying power.

So when you trigger the day trading pattern rule, you no longer get this buying power here, the 2:1 leverage. You are now basically going back to whatever cash you put in there.

How can you avoid this?
1) Have $25,000 in your account. So if you have $25,000 in account, then no worries.
2) You can avoid it here by trading a cash account. If you're not trading a margin account, you don't have to worry.
3) If you are trading futures, forex, bitcoins, so cryptocurrencies, or if you are trading binary options, this is also when the day trading pattern rule does not really matter.

Links and videos in this episode:
Wheel Playlist:
   • Options Income Trading Strategies  
Trading Taxes Explained:    • Trading Taxes EXPLAINED! Step-by-Step  
Cash Covered vs Naked Puts:    • Cash Covered vs Naked Puts - What's T...  
PowerX Strategy on Kindle: https://www.amazon.com/PowerX-Strateg...
How to manage a trade that's in trouble:    • How To Manage A Trade That's In Troub...  

#PatternDayTraderRule #PatternDayTrader #DayTradingRuleExplained
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