Key Takeaways
- The Pattern Day Trader Rule (PDT) restricts traders with accounts under $25,000 from making more than three day trades in a rolling five-day period.
- Any trader who violates the 3 day trading limit within a rolling 5 day period will only be able to reset their account once in the Platinum of the account – which means that they must be extra diligent if they want to keep trading without restriction.
Are you a day trader trying to make it in this stock market game? Well, buckle up… the Pattern Day Trader Rule (PDT) is about to get even more complicated. With new restrictions now being implemented on short-term holding periods for accounts under $25,000, many retail traders are feeling the squeeze. This isn’t just another blip in the wake of larger regulations but rather an example of how ever-tighter trading conditions are affecting our ability as individuals to practice our craft without limit or interference. To some degree these bands can be seen as protective measures encouraging safer investments and securer long term gains, but when will enough be enough?
What is the Pattern Day Trader Rule & Who Does It Affect
Have you ever heard of the PDT Rule? PDT stands for Pattern Day Trader, and it’s a restriction applied to traders with brokerage accounts under $25,000. It aims to limit high-risk day trading operations by preventing traders from making more than three day trades in a rolling 5 day period. And if they do, they’ll only be allowed to reset the PDT count once – afterwards, their account will be temporarily suspended. So if you’re an aspiring day trader, this is something you should be aware of because it affects how much you can trade and when.
How Recent Changes to the PDT Rule Can Impact Brokerage Accounts Under $25,000
With more stringent restrictions for Pattern Day Trader Rule violations now in place for brokerage accounts under $25,000, traders need to be aware of the changes and how they will affect their trading. Early Friday morning on March 3, 2023, broker Tastyworks sent an email to its account holders stating:
“We have an important update regarding Pattern Day Trader Status Resets on your account(s). In response to FINRA’s updated interpretation to the Margin Rule for Day Trading, our clearing firm has made certain changes to align with the current guidelines. Subsequently, tastytrade will modify the number of Pattern Day Trader Resets that are available to account holders.
Starting March 6th, 2023, account holders will only be allowed to request one (1) PDT reset for the Platinum of their margin account(s). Additionally, all accounts that have made a PDT reset in the past 90 days will be provided one last PDT reset. When you are flagged as a Pattern Day Trader, for making more than 3-day trades in a rolling 5 business day period, you must maintain the minimum net equity requirement of $25,000 to keep your PDT classification and to continue trading. Otherwise, your account will be restricted to closing only until your account is over the $25,000 threshold, or you can use the one-time only request to reset the PDT status for your account(s).
Please keep in mind a PDT classified margin account that is valued over $25,000 can still receive an Equity Maintenance (EM) call due to a futures or crypto cash sweep. When a cash sweep causes your securities account balance to drop below $25,000, and you have more than 3-day trades in a rolling 5 business day period, an EM call will be issued, and your account will be set to closing only for securities trading. To learn more on cash sweeps and how they may affect your account status, visit our Help Center article here.”
In summary, any trader who violates the 3 day trading limit within a rolling 5 day period will only be able to reset their account once in the Platinum of the account – which means that they must be extra diligent if they want to keep trading without restriction.
Strategies for Avoiding Violations of the PDT Rule
If you’re an active trader in a small account, you need to be extra diligent about following the Pattern Day Trade rule. This rule restricts traders with accounts under $25,000 from making more than three day trades in a rolling five-day period. To avoid any unintended violations, it’s important to carefully plan each trade. Here are some strategies to use:
- Consider limiting your trading strategy to one or two profitable stocks that you can monitor over time.
- Determine entry and exit points before placing trades and maximize price efficiency through limit orders when possible.
- Open multiple accounts with different brokers to spread out your day trading activities and avoid exceeding the PDT count.
- Track and review your daily trades, making sure that you don’t exceed the 3-trade limit within a 5-day window.
Understanding Your Rights as an Investor Under the PDT Rule
If you’re an investor with a brokerage account of under $25,000, the Pattern Day Trader Rule restrictions can have a big effect on your trading activities. Understanding your rights as an investor is key for making sure you stay within the PDT boundaries and don’t accidentally face a Margin Call or be subject to capital limits. Recently, there’s been a change in the PDT rules so that traders are only allowed to reset their count after violating it if they’ve done it within three days in a five-day period. Remembering and respecting these limitations is essential if you want to ensure you’re having the most successful investing experience possible.
The Future Outlook for the PDT Rule – Will It Ever Get Easier
The PDT rule is a pain, there’s no doubt about it. And with these new restrictions, it’s only going to get worse. For those of us who don’t have $25,000 to deposit in our brokerage accounts, we’re stuck with the 3 day trading limit. That means if we make 3 trades in a 5 day period, we’re done trading for the rest of the week. And if we want to reset, we have to wait until the end of the month.
It’s a frustrating rule, especially for those of us who like to trade more frequently. But there’s no sign that the rules are going to change any time soon. So for now, we just have to deal with it.
Additional Resources to Learn More About the PDT Rule and Its Restrictions
If you’re new to investing or are unfamiliar with the Pattern Day Trader Rule and how it restricts accounts with balances under $25,000, you might want to brush up on your knowledge of the PDT. Although it can feel daunting trying to navigate the restrictions associated with this rule, there are plenty of resources available that could be incredibly helpful. If you don’t know where to start, I wrote an article about the PDT rule. Taking advantage of these resources can help make understanding the rule much easier and give you peace of mind knowing that you have a clear grasp on what’s expected from traders in PDT-regulated accounts.
Bottom Line
With the recent changes to the Pattern Day Trader Rule, it’s obvious that investors and traders need to be extra vigilant when managing their brokerage accounts under $25,000 if they wish to avoid penalties. From understanding what the PDT Rule is to strategizing how you can trade safely within its boundaries – this post has outlined all of the necessary information required to make informed decisions that align with current regulations. As with anything financially related, it’s always wise to stay up-to-date and look at potential preventative measures so as not be caught off guard. Everyone should research the PDT Rule further, keeping in mind their own trading style and level of risk tolerance when making decisions influenced by regulation. The future outlook for the PDT Rule is still unclear and only time will tell if future modifications are made. What do you think about the PDT rule? Let me know in the comments below; I’d love to hear your thoughts on this!