How To Trade Futures

Day Trading Rules - What Is The Pattern Day Trader Rule?
Learn how to avoid this day trading rule at http://daytradervideo.com

This is one of the most asked about day trading rules that I see. I get emails and comments about this all the time. So, I figured I'd tackle this in a video.

What exactly is the pattern day trader rule?

This rule was created by the Securities and Exchange Commission to protect people from losing a lot of money at any given period of time. But that's not the actual definition of the pattern day trader rule and I'll give that to you in a minute.

Just understand that it's another one of those rules that our government has enforced to protect us from doing something really crazy like blowing up several accounts. Now while I don't agree with it and most of you probably won't agree with it either. After all this is a free country isn't it?

The bottom line is that if you plan on being a day trader and trading anything other than futures and forex then you are going to have to follow this and many other day trading rules. Your brokerage will have systems in place to prevent you from making any more than the allowed number of trades within 5 day time period.

So, now let's talk more about the specifics of this day trading rule.

A pattern day trader is described as someone who buys and sells any security for four or more times in any five consecutive business days. The main rule to understand is that in order to avoid this altogether you must maintain an equity balance of at least $25k.

This amount has to be in your trading account or else you'll be subject to this rule. As you can imagine this can make it extremely hard for anyone who is trying to start out learning to trade stocks or any security for that matter.

You're either going to need to have a good chunk of change stashed or you're going to have to make less than the 4 roundtrip trades per any 5 day period. I can tell you from experience that it wasn't easy for me and that's why eventually as I loved to take many trades. So, I had to initially fund my account with more than 25k and eventually I just moved over to futures that doesn't have the same requirements.