Day traders are stock traders who buy and sell their stock within the same business day. This is a good strategy especially for people dealing with huge sums of money. Small fluctuations in stock can lead to huge changes in stock value. However, there are rules that govern PDT that every trader should observe. In this article, we are going to look at how to avoid becoming a Pattern Day Trader. The methods include:
Use a cash account
The pattern day rule only applies to marginal accounts. A margin account is an account that allows traders to use borrowed funds to buy and sell stock. However, if you are not borrowing money to buy and sell stocks because you have cash account the PDT rule does not apply to you. Therefore, to avoid the pattern day trader rule, you need to fund your transactions through a cash account.
Open multiple brokerage accounts
Another method of avoiding pattern day trader status is opening multiple brokerage accounts. With such accounts, you can plan the amount that you want to spend on each account in a bid to avoid being declared as a patterned day trader. Many people who engage in stock trading normally have more than one trading account. Therefore, having more than one trading account will neither break PDT rule nor raise any suspicion.
Swing trade
Swing trading is holding stock for more than one trading day. Swing traders normally buy stock one minute before the trade is closed and on the other hand, sell the stock one minute after the trade has reopened in the next day. Swing trading is considered as an alternative to day trading on many occasions. If you are a day trader and find that that there are many obstacles, you can opt for swing trading. This type of trading will exempt you from penalties related to pattern day trader status.
Fund your account for more than $25,000
If you have more than $25,000 in your account, you will be able to bypass rules that apply to a pattern day trader. This also applies when you have a margin account. However, if you have multiple accounts and you need to avoid PDT rules, you need to fund each of those accounts with more than $25,000. That will save you from the risks associated with being labeled as a PDT and at the same time, enable you to trade on stock as soon as you want.
Trade with a proprietary trading firm
When it comes to stock trading, there are numerous prop firms that you can trade with. You can either trade with them on their floor or you can opt to either do it remotely or virtually. The benefit of trading with such companies is that they allow minimum amount of deposit into each account and this can be very beneficial to a beginner. On the other hand, you can trade on the firm’s capital and this can allow you to do day trading without the risks that are associated with patterned day trading. However, you need to choose firms that are highly reputable in the industry so that you can reap the benefits that come with proprietary trading.
Open a SureTrader account
As we continue to look at the different ways of avoiding the pattern day trader status, it is important to think of opening a SureTrader account. SureTrader was founded in the year 2008 as a division of the Swiss America Securities, Ltd. The firm was registered in Bahamas and is regulated by the Securities Commission of the Bahamas. SureTrader offers online brokerage services that enable you to day trade without facing the pattern day trading penalties.
A SureTrader account is therefore important for those looking to trade on stock on a day to day basis.
The split brokerage accounts wash method
The split brokerage method is another way through which you can avoid becoming a pattern day trader. In this method, you use several brokers to sell and buy stocks. For example, you can buy 500 shares of xyz stock and when selling, go for a different broker. With a split brokerage account, it is possible to trade on stock on a day today basis without being classified as a pattern day trader.
Trade futures
Most stock markets close at 4 am every day. However, that does not mean that trading is over. There are some traders who maximize on profit by trading on futures. Basically, this arrangement comes as an agreement to buy and sell stocks at a predetermined price and at a specified time in the future. However, to engage in this kind of trading, you have to be very accurate at predicting the future price of stock for a given entity. This is to avoid making unforeseen losses.
Forex trade
Forex is a decentralized global market where all world currencies are traded. In fact, it is believed that the Forex market is the largest and the most liquid market in the world. In Forex, you can transact for as many times as you want in a day.
Conclusion
Although there is no easy way to avoid the pattern day trader rules altogether, you can easily bypass it when you have the financial means to do so. However, we have outlined different tips on how to avoid penalties that come with the rule. However, it is important to note that the PDT rule is aimed at protecting you and your money.
