Day trading is pretty high-risk no matter how you look at it. It takes a certain skill set to know when to buy and when to sell. The trader also needs money he’s not afraid to lose and the belief he can earn it back the next day.
Pattern Day Traders (PDT) know how to study the markets and pick-up on trends in market news. Using a cash account is one way to work the system.
Are you thinking about getting into the world of PDTs? Keep reading to learn some of the loopholes around the PDT.
The US Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) state that a day trader must maintain a balance of $25,000 minimum equity level in a cash account.
There are other rules that regulate the number of trades a person can make and not be considered a day trader. It is all about working the system to your advantage.
If keeping your money in an interest-bearing account, consider opening a Wealthfront Cash Account.
The goal of a PDT is to make a lot of money in the shortest time possible. They are not looking for long-term investments. In uncertain markets, they cannot risk a stock dropping and taking a lengthy amount of time to recover.
Regulations on day trades state a person who makes four or more trades in a day over continuous days is classified as a PDT. If you stay below four trades over a five-day period, you can avoid the $25,000 rule.
A true PDT will lessen your earning potential, but it frees up your cash on hand for other things.
Another option is to maximize your ability to make as many trades as possible without meeting the minimum of a cash account. You can do this by opening multiple accounts with several brokerage firms.
Initiate three trades a day once a week using the various accounts. You’ll avoid being classified as a PDT but still use your tactics for working the market.
Have you considered trading in a foreign stock market? This is a great opportunity for a serious day trader. Each country has its own rules. Do your research to find the ones that do not require a high minimum balance in a cash account.
Before going with this option consider legal and tax implications. A Certified Public Account (CPA) can advise you on how the move will affect your taxes. A tax attorney can address legal roadblocks.
Making a cash account is a good way to skirt regulations. The thrill of being a PDT is sometimes more exciting than the cash you earn. However, there should come a time when you want to move into the next level of investing.
Are you looking for ways to become a better trader? Click here to enroll in our Option Trading Program.