Home > Beginner education > The pattern day trading rule

The pattern day trading rule

During February 2001, the SEC approved rule changes aimed at imposing stringent margin requirements for day trading customers. Customers who are deemed “pattern day traders” must have at least $25,000 in their accounts and can only trade in margin accounts.

This rule came about as an over reaction to the internet bubble. Too many people were quitting their jobs to try and take advantage of the wild upswings in the market. I say upswings because it was the giant downswing in the market that lasted from September of 2001 until March of 2003 that prompted the rule. Many individuals had their retirement accounts cut in half. Many who were close to retirement ready to live the golden years had to go back to work.

Could this have been prevented? Does the rule accomplish what it was intended to do? What can you do if you don’t have $25,000 and want to day trade for a living? I will answer each of these separately.

Could the huge losses in retirement accounts have been prevented? Yes! If you never traded professionally before you should not have risked more than a small portion of your 401K on speculating. Good structured speculation means you have a plan. In that plan you should have a definite dollar amount to risk per trade.

Does the rule accomplish what it was intended to do? Absolutely not. The SEC decided that if you have $25,000 you are a sophisticated investor and are therefore qualified to day trade. That is a joke. So let me get this straight, if I made $30,000 selling pizza for a living that makes me a qualified trader because I have the money?!

What can you do if you want to day trade but don’t have the $25,000? Whether you have the money or not you should get a solid education. Day trading for a living requires capital. Or more specifically to day trade you need buying power.

There are two avenues you can take, you can get the required licenses which will allow you to place a risk deposit (less than $25,000) with a broker dealer and they will leverage you. Or you can trade with a firm like Keystone Trading Group where we will back you with our capital if you enroll in our training and mentoring programs.

No matter what you do, get educated by people actually trading for a living. If your instructor does not allow you to watch him or her trade walk away.

http://www.keystonetradinggroup.com/

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