You never think about breaking rules but if you are a forex trader no matter if you are new or an expert in this field.
You have to break rules to get some benefits.
Shocked?
Don’t worry!
There is no court of law to punish you for doing so.
Many of us want to become day traders but don’t know the actual process. This post will solve all of your problems.
At first, you must be aware of how to avoid pattern day trading?
It is not as difficult as you think. You can make a start by understanding the rules of PDT. It will help you to avoid pattern day trading. There are 6 basic tips to overcome this type of trading. These tips are: control the number of day trades, open more accounts, join an exclusive firm, choose a remote broker, cash accounts, and select different trading markets.
As a trader, if you think about Pattern day trading, you must feel trembling. It works as a safeguard for new traders who are careless about their investments.
Many traders face difficulties in this field because they don’t have proper knowledge and guidance about it.
This post will cover all important points related to this topic.
So, let’s start reading!
What Is Pattern Day Trading
Before going ahead with the topic, it is crucial to know about what a pattern day trading is?
Simply speaking, if a trader makes more than four tradings per day in five working days of the week, he is called a pattern day trader. In this type of trading, your account may be updated around 5-6 % in those business days.
Generally, there are several day trading types but the common types are Pattern day traders (Offenders) and Self-identified traders.
Let’s discuss them in a bit detail:
- Pattern Day Traders (Offenders): In this type of trading, traders make plans to go against the rules of PDT. They also avoid the requirements of investment set by the firm.
- Self-Identified Traders: This type of trading consists of individuals who are also called day traders. They inform their broker about their plan of day trading and also fulfill the investment demand.
So, if your broker comes to know about your wish and intention to join pattern day trading or you open or close accounts of this type, he will allow you to join PDT.
That’s why, if you get training as a day trader, it means you are ready to enter pattern day trading.
Rules of Pattern Day Trading
Like many other trading types, pattern day trading has some rules to follow that are essential to understand for a trader.
These rules are helpful in trading as they reduce the chances of risks and guide you on how to move on.
So, let’s have a look at these rules before going to know about their violation:
- A day trader needs to have a trading account that fulfills the demands of investment that is around $25000. In this way, they can continue their trading activities easily. It will also prevent trades from risks and increase your purchasing ability.
- Only cash is not essential in this case. Other securities along with cash are also justifiable.
- All these requirements are set by FINRA (Financial Industry Regulatory Authority). This firm allows all the statements before you start your day trading activities.
- If your account goes below the required amount, you have to keep yourself away from any type of day trading until you fill your account with the demanding amount of investment.
- If you break any rule of pattern day trading, a broker has the authority to block your account. This locking period may last 1-4 months but it may be increased or decreased according to different brokers.
New traders who are not responsible enough can get benefit from the above rules. These rules help them to save their capital.
How To Avoid PDT Rules
Do you want to prevent Pattern Day Trading Rules?
But don’t know what to do?
Don’t worry!
It’s not a difficult task. If you are fully aware of the trading plans it will prove an easy and simple task.
Here are some easy and workable points you have to follow to avoid PDT.
1. Control The Number Of Day Trades
The number of trades you may complete in a day is a key factor to come out of the pattern day trading.
So, it’s important to control your per-day trades. Once you can make a lot of trades, you automatically move towards day trading from pattern day trading.
2. Open More Than One Account
Your success relies on the number of accounts you open. It is essential to open as many accounts as you can to avoid pattern day trading.
In this way, you will be able to trade many days out of 5 trading days. So, you can trade with different brokers at the same time.
You just have to maintain your taxes in a file with sequence. This process is not illegal.
You can do it easily.
3. Join Exclusive Trading Company
The firm you joined is also important to move from PDT to any other trading platform. There are three reputed firms you have to join. These are Professional firms, leverage firms, and advisory firms.
You can get as much leverage from this firm as you want. Advisory firms guide people about trading and savings, and allow those people to join who are willing to know about other sources of income.
People with the latest degrees can join professional firms to get a handsome salary or profit.
4. Select A Remote Broker
The broker you select plays a vital role in the trading world. So, be careful while choosing a broker as you have to face many scams and fraud in this field.
As you know many trading markets in other countries have less strict rules. So, take the services of a broker who has foreign links and help you to trade at large scales.
5. Trade With Cash Account
Trading in cash makes the world of trading much easy for you as you may avoid scams and payment problems.
It will also help you to prevent pattern day trading strategies. But before taking any step, you must be aware of the fact that cash trading is banned in day trading.
To make it possible, you have to get permission from an authorized firm to run a cash account.
6. Choose Different Trading Markets
It is important to have complete knowledge about different trading markets. By doing this, you will be able to select the best trading platform without following pattern day trading rules.
The investment level of the different markets is different that’s why, when you choose different trading platforms, you will be figuring out the best market for investment.
Frequently Asked Questions
Can you become a day trader without pattern day trade?
To continue day trading activities, you are required to have a minimum worth in your account. If your account goes down the required level, pattern day trading will not allow you to become a day trader.
What happens if you break the rules of a pattern day trader?
After breaking the rules, your account may decline and you are treated casually for the first time. But it depends on the type of account you have. You may be concerned about the margin calls.
How long does a pattern day trader last?
A pattern day trader is defined as a customer who can carry out trading within 4 days out of 5 working days.
Final Words
In this section, we conclude the topic of how to avoid pattern day trading with these words that it is not easy to violate against PDT.
Generally, there are some strict rules that you have to understand before breaking them. Just follow the above-mentioned tips to come over this trading type.
No doubt, for new traders it will prove a challenging task but don’t be disappointed…
You can do it after a little effort.
Don’t forget to share your experience with your Forex Trader Friend and also tell us if you find this post informative.
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