How do I get rid of pattern day trader rule?

The pattern day trader (PDT) rule is an SEC regulation that limits the number of day trades a person can make within a 5 business day period. Specifically, if you make 4 or more day trades within 5 business days and your account is under $25,000, you’ll be considered a pattern day trader and restricted from day trading for 90 days.

However, there are a few ways to get around the PDT rule:

Increase account value to over $25,000

The easiest way to avoid the PDT rule is to maintain a minimum account value of $25,000 or more. As long as your account stays above this threshold, you can day trade as much as you want without restrictions.

To increase your account value, you’ll need to deposit more cash or securities. Some brokers also allow you to use your account’s buying power as part of the $25,000, so you may not need to fully fund the account.

Open multiple brokerage accounts

If you don’t have $25,000 to fund a single account, open up multiple brokerage accounts and distribute your capital. For example, you could open 4 different accounts with $7,000 each. This would give you $28,000 in total trading capital across the 4 accounts.

Just be aware that this strategy takes more effort to manage. You’ll need to track PDT status across each account separately. Some brokers also prohibit traders from having multiple accounts specifically to evade the PDT rule, so check your broker’s policies.

Trade with an offshore broker

Some overseas brokers that are not registered with the SEC do not enforce the PDT rule. For example, brokers located in Canada or the UK do not restrict pattern day trading like US brokers do.

However, trading with an offshore broker also comes with increased risks. Make sure to do your due diligence, as these brokers have less regulatory oversight and financial transparency.

Switch to cash account

The PDT rule only applies to margin accounts. Switching to a cash account allows unlimited day trading, but your broker will require trades to fully settle before using those funds again.

For example, if you buy $5,000 worth of stock today and sell it tomorrow, you won’t be able to re-use that $5,000 until settlement (typically 2 business days). This limits how frequently you can enter and exit positions.

Use equity options

Options trading is not subject to the PDT rule. You can day trade options in a margin account without running into any issues, even if your account is under $25,000.

Just keep in mind that options involve much higher risk compared to stocks. Be sure to learn how options work and paper trade before putting real capital at stake.

Apply for PDT exemption

Some brokers allow you to apply for an exemption from the PDT rule if you have a legitimate business need to day trade. These exemptions are rarely given out, but it’s worth asking your broker if it’s an option.

You’ll likely need to demonstrate extensive trading experience and provide a detailed business plan explaining your day trading strategies and reasoning for needing an exemption.

Use futures instead of stocks

The PDT rule does not apply to futures contracts. You can day trade mini-S&P 500 futures or other futures products without any account minimums or trade limits.

Futures involve substantial risk like options though, so sufficient education and experience trading is vital before using futures for day trading.

Trade indices via CFDs

Contract for difference (CFD) providers are not subject to the same SEC regulations and restrictions as US brokers. You can day trade CFDs on indices like the S&P 500 without running into the PDT rule.

However, know that CFD trading carries its own risks like leverage requirements, wider spreads, and counterparty risk from the broker.

Use a foreign brokerage account

Some foreign brokerages offer US citizens the ability to open accounts without the PDT rule. For example, Turnkey Forex and Forex.com allow US traders to open accounts with no PDT restrictions.

Keep in mind the increased risks of using foreign brokers though, like having your funds held in international jurisdictions.

Swap to a prop firm account

Funded trading accounts from prop firms provide the capital, so you can day trade without needing $25,000 personally. Once funded, you can day trade up to the account’s maximum trading limits without the PDT rule.

You’ll likely need to pass an audition showing profitable trading first. And profits may be split with the prop firm. But it removes the PDT account minimum issue.

Trade micro futures

Micro e-mini futures contracts from brokers like NinjaTrader let you day trade equity indexes like the S&P 500 without the burden of the PDT rule. Contracts start at just $5 per tick.

But know that any futures trading comes with substantial risk. Only trade after you’ve gained experience with micro futures in a demo account.

Use a PDT reset

If you do trigger the PDT rule, your broker will restrict your account from day trading for 90 calendar days. However, you can request a PDT reset to remove this restriction early.

Each broker has different rules around resets. Many let you request 1 reset per year or 18 months. It’s not guaranteed though, so consider a reset more of an exception than a rule.

Conclusion

Circumnavigating the PDT rule takes some creativity and flexibility from your trading approach. The easiest options are to fund a single account over $25k or use multiple accounts to total above the threshold.

Other alternatives like trading futures, options, or with foreign brokers work but may introduce new risks. Often the best solution depends on your personal trading style and capital availability.

With the right strategy, it’s certainly possible to day trade frequently even with an account under $25k. Just know the additional complexities and analysis required when dealing with the PDT rule.

Method Pros Cons
Increase account value over $25,000 – No restrictions once over $25k
– Simple setup with single account
– Requires substantial capital
Use multiple brokerage accounts – Allows PDT with less than $25k total
– No exotic products needed
– More accounts to manage
– Some brokers prohibit
Trade with offshore broker – Avoid PDT rule completely
– No minimum capital needed
– Less regulatory oversight
– Increased trading risks
Switch to cash account – No PDT rule for cash accounts
– No account minimum
– Funds unsettled after trades
– Limits day trade frequency
Use equity options – PDT does not apply to options
– High profit potential
– Increased complexity and risk
– Options knowledge required
Apply for PDT exemption – Would fully avoid PDT if granted – Very rarely given out
– Difficult application process
Trade futures – No PDT for futures
– High leverage
– High complexity and risk
– Volatile markets
Trade CFDs – No PDT for CFD trading – Counterparty risk
– Leverage magnifies losses
Foreign brokerage account – Avoid PDT as US citizen – Foreign jurisdiction risks
– Varying regulations
Funded prop firm account – Provided trading capital
– No PDT restrictions
– Split profits with firm
– Account auditions
Micro futures – Low cost futures day trading
– No PDT rule
– High risk like regular futures
PDT reset – Removes PDT ban – Typically only 1 reset per year
– Not always granted

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