How to Get Around the PDT Rule with a Small Account (Pattern Day Trader Rule Explained)

are you trading with a small account and under PDT well here are some ways to get around it and my tips on how to trade with a small account under $25,000 this rule could be kind of limiting since that means you can only day trade three times a

week so in this video we'll be talking about the four ways to get around the PDT rule and some useful trading tips I have for you if you are beginner trader with a small account so if you're new to trading and want to start making a Lamborghini money

remember to drop a like at the bottom of the video just kidding only Corolla and civic money here first of all let's go over exactly what this PDT rule is it's a stupid rule my mother told me when I was little I have to ask your permissions every

time I want to eat my Halloween candies from trick-or-treating and I can only do so three times a week even though those hard-earned candies and chocolates are so rightfully mine how is that even fair okay somehow that analogy has to do with the PDT rule you just kind

of have to figure it out just kidding I never had to deal with the PDT rule and I never had a mother who lets me eat candies either PDT rule stands for pattern day trader rule it was established in 2001 by FINRA and the United States SEC basically

it limits how many times you can day trade a week if your account is under $25,000 under the PDT rule the day trader can only place three day trades in a consecutive five-day period a day trade is when you open and close a position within the same day

so for example if you buy and sell a stock or short and cover a stock position these are considered round-trips and they each count as a day trade basically if you're trading within accounts less than $25,000 and hence under PDT rule and you decide to place two round-trips

on a Monday and then one more on the Tuesday then that means you cannot they train again until the following Monday too many beginner day traders with a small account this could be quite a limitation after all it's your hard-earned money it's difficult to accept that the SEC

should be able to limit your access to buying power all in the name of protecting the investors but the PDT rule is not necessarily a bad thing all the time I have some really useful trading tips for beginner traders with a small account later on in the video

so hold on tight so how do you get around the PDT rule well here are some options for you the first option is to use a cash account this is a little-known fact that many beginner traders don't realize PDT rule only applies to margin trading accounts margin trading

allows you to use leverage essentially borrowing money from the broker to trade so that say if I have a $5,000 margin accounts with Interactive Brokers since the broker allows me four times leverage my buying power to day trade is actually twenty thousand dollars so if I'm looking to

buy a stock like CCL Carnival Cruise Lines that's currently trading around eleven dollars my maximum sheer size I can take is a little bit over 1,800 shares but since I'm using that $5,000 in a margin trading account that would subject me to PDT rule alternatively you can open

a cash accounts with any of your brokers since the account is in cash you will not have access to leverage the twenty thousand dollars of buying power that we mentioned earlier so you are true buying power is the same 5,000 dollars you have in cash that means in

this case the most CCL shares I can buy is around four hundred fifty four shares the benefit of trading with a cash account is of course you're not subjected to the PDT rule and the three day treat the limitation per week but the downside is you need to

wait for the cash to settle after you sell the position the settlement is two days that's the standard across most of the brokers so for example if I decide to buy the most CCL shares I could with the same $5,000 cash account i buy and sell 554 shares

a Monday I will not have access to that cash again until Wednesday I know some of you are getting frustrated right now but a humble trader that's exactly the same as trading under a PvP rule you're a liar but that's a if you trade smaller size instead of

using the entire $5,000 cash to buy a single position what if you divided it up to use $500 or $1,000 gross exposure per trade so if you use $1,000 of that cash today trade CCL on Monday you still have access to the remaining four thousand dollars to trade

on Tuesday and then you get the cash settlement back on Wednesday and so on and so forth basically if you could allocate meticulously just $500 or up to $1,000 position for each trading day you could be in a better position and have access to more day trades than

if you are trading under PDT with a margin account and yes obviously this method will only benefit you if you had a bigger account size of a couple of thousand dollars if you're trading with just 500 to a thousand dollars you really don't have much cash to work

with whether you're trading in your cash account or a margin account under PDT another downside that's worth noting is that you cannot short sell a stock with a cash account but for most beginner traders starting out it's better to learn how to buy what long a stock anyways

the second way you can do to avoid PDT it's a variation of the first one instead of opening one single cash account or one margin account with $5,000 you could divide that capital up into multiple margin accounts so if you take that $5,000 and you split it into

two separate margin account different brokers then you have a total of six day trades a week and if both of the brokers still give you four times leverage then you still have a total buying power of $20,000 and honestly that's not bad now obviously the more capital you

have the more margin accounts you can open and access even more day trades if you have a total of let's say $10,000 then you can open three or four margin accounts depending on the broker minimums and then you can have access to a total of nine or twelve

day trades a week now the third option for day traders with a small account to avoid PDT is to marry a Canadian move to Canada apply for permanent residency hit that like button to get approved and then open a brokerage account here in Canada and voila you don't

have to trade under PDT now if only I know a day trader in Canada okay oh jokes aside the third option to avoid PDT is actually one that I wouldn't strongly recommend but some traders might choose to do this it's to open an offshore trading account only the

us-based brokers have to follow the FINRA and the SEC rules which includes the PDT rule some offshore brokers I know many traders use our ce mec and trade zero there's no PDT rule a/c Meg and it's the same thing a trade zero international but the thing is trade

zero international they do not accept US applicants American traders have to go with trade zero America which still has the PDT restriction using an offshore broker could mean a lot more risks for the traders and investors since the brokerages are not regulated by FINRA a really good example

of this was sure trader it was an offshore broker in a Bahamas back in two thousand fifteen and sixteen sure trader was very popular among the American traders in order to avoid trading with et restriction but unfortunately in 2019 sure trader was shut down due to a lot

of controversial issues involving penny stock pump and dump scheme involving the insiders poor record-keeping and violating some of the financial rules and regulations we're not gonna go into the details here since that broker no longer exists but this is why I do not recommend going with this route

unless you absolutely have to if you choose to trade with an offshore broker make sure you read all the reviews fine print and just understand the potential risks and regularly withdraw your funds from your account the fourth way to get around the PDT rule is to buy and

swing over a position overnight since PDT rule only applies to day trades meaning when you buy and sell a stock within the same day when you buy and hold a stock overnight and sell it the next day into pre market spike or the morning push that does not

count as a day trade and it's the same thing if you decide to get into swing trading for a couple of days or a couple of weeks I have a video on my buy overnight strategy if you want to check that out that brings us to the topic

of a lot of costly mistakes I see beginner traders make because they're trading under PDT rule here are some important tips for trading with a small account that might help you out first of all make sure you're keeping track of your three-day trades and check yourself before entering

each trade if you break the PDT rule you might receive just a warning the first time from your broker but the second violation could result in the broker freezing your entire account for 90 days or until you can fund the account above $25,000 second tip only use your

day trade if you see a quality set up do not force trades I see a lot of new traders on the PDT rule and they feel like they must use up all the three day trades for the week otherwise it's waste and no that's absolutely not true if

there's no a-plus setups for you in this market condition do not force trades that's what we call over trading same thing with swinging a stock overnight don't enter a swing position just because you used up all your three-day treats for the week and you are gonna hold the

position overnight just for the sake of it or even worse tip number three you should never turn a losing day trade into a swing trade I see many beginner day traders lose track of their day trades on the week and they realize they cannot sell a day trade

position because of the risk of violating PDT rule so they end up having to hold a losing position overnight what happens if the shady penny stock company decides to do an offering after markets closed or pre markets the next day you should never ever turn a losing day

trade into a swing trade that's what we call bag holding or trading on hope like I mentioned many times before on this channel day trading is a business it's not a hobby and definitely not something you can just pick up in one or two weeks because you suddenly

have the time to sit in front of the computer all day during quarantine so we all know it takes money and capital to start a business it's the same way with trading it takes money to grow a small trading account the minimum I would recommend to start day

trading it's at least 4,000 or 5,000 dollars trading under PDT rule it's not necessarily a bad thing if anything it forces a new trader to be even more selective and patient only entering traits that may have planned out for as they're a plus setup no chasing breakouts and

definitely not following chatroom alerts so let me know in the comments below are you trading under PDT rule and are you using any of the four methods I mention in the video thank you guys so much for watching as always and the homo trader and I'll see you

guys next week hey guys thanks for watching I hope you enjoy the video and the bad jokes if you want to see more day trading content make sure to subscribe and follow me on Twitter and Instagram for more if you'd like to trade with me daily and get

my free weekend watchlist and trading journal make sure to check out the links below for more resources stay green stay positive and I'll see you guys next time