How to Day Trade With Less Than $25,000 – A Beginner’s Guide

So you want to be a day trader -- deftly moving in and out of trades and racking up gains every day. But according to regulators, day trading is forbidden unless you have a minimum equity of $25,000 in your account. Is there any way you can day trade with less than $25,000? The good […]

November 16, 2021
PB Team

So you want to be a day trader -- deftly moving in and out of trades and racking up gains every day. But according to regulators, day trading is forbidden unless you have a minimum equity of $25,000 in your account. Is there any way you can day trade with less than $25,000?

The good news is, like most things money-related, there are plenty of loopholes and workarounds that can help you fulfill your day-trading dreams without having a ton of dough in your account.

In this guide to day trading with less than $25,000, we'll share our favorite tips and tricks. But first, let's cover a few basics about day trading.

Day Trading for Beginners

Simply put, day trading is a strategy that involves opening and closing a position within the same trading day.

For example, you could buy a stock position with your morning coffee at 9:15 a.m. and then sell it while enjoying a late-afternoon snack at 4 p.m.

Day trading has grown in popularity since online trading has become a "thing." After all, many discount brokers like Robinhood and Webull charge zero fees to execute a trade. And thanks to high-speed internet, it's easier than ever to make lightning-fast trades.

As you can imagine, day trading is highly speculative -- after all, you're betting on volatile trades. And a lot of day traders end up losing more money than they make.

To be successful as a beginner day trader, you need to develop a strategy to manage your risk.

Many day traders look for momentum stocks that are experiencing big catalysts like surprisingly positive earnings announcements. Others study charts of trading volume to find breakout plays.

Some of the best day traders decide before even entering a trade what their exit point will be. This helps remove some of the risky emotion from the trade. There's no "just hold on a bit longer to see what happens" allowed.

Whatever strategy -- or proprietary blend of strategies -- you adopt, there are some rules to day trading you must understand.

FINRA's Day Trading Rules

The Financial Industry Regulatory Authority (FINRA) defines a "pattern day trader" (PDT) as anyone who makes four or more day trades in a five-day period in a margin account. In addition, those trades must make up more than 6% of your total margin trading activity during those five days.

And the rules to day trading state that a pattern day trader must maintain a brokerage account balance of at least $25,000.

If you act as a pattern day trader -- making four or more trades in a five-day period in a margin account -- and do not have at least $25,000 in your account, your broker will flag your account. This could lead to you being prohibited from purchasing stocks or other securities for a 90-day period.

What's a Margin Account?

Whoa, Nelly! Let's hold up there for a minute and check out a super-important term: margin account.

A margin account is a brokerage account in which you borrow cash from your broker to purchase stocks or other assets. You need to have a minimum deposit in your account to use as collateral (Robinhood and Webull both require a minimum of $2,000, but some trades require more).

It goes without saying that you'll also need to pay interest on your margin loan.

Because you use borrowed money when you invest on margin, you get leverage for either bigger profits… or losses. Margin allows you to grab bigger returns if your position appreciates in value above the interest rate your broker charges.

On the flip side, if the value of your trade decreases, not only will you be in the red and have to pay the broker back, but you'll still have to pay the interest on top of that.

However, day traders tend to thrive on risk. They love the idea of magnifying their profits. So a lot of them use margin accounts for their trades.

And when a brokerage identifies you as a pattern day trader, you'll get to trade with additional leverage to make even larger bets.

How to "Day Trade" Without $25,000

So if you're willing to take on the risks of day trading but don't have a margin account with $25,000, how can you begin?

Luckily, there are several loopholes to get around the PDT requirement.

Use Our Cash Account Trick

Our favorite way to day trade without becoming a pattern day trader is by using a cash account, rather than a margin account.

Of course, you won't get the advantages of leverage that a margin account can give you.

But on the plus side, you won't have to worry so much about FINRA's PDT rule.

Here's how to do it:

First, set up a cash account. Many Pennybois members like to use Webull, since it offers great tools and a very beginner-friendly interface.

Wait for your funds to settle. This can take two or three days. You'll receive a notice from your broker saying that your funds have settled.

This is important: You must have 100% settled funds before proceeding.

Once your funds are settled, you can start trading. We recommend spreading your total funds over three trading days.

Use 30% of your funds to trade on Monday, 30% on Tuesday, and 30% on Wednesday. Keep the remaining 10% as a reserve.

Let's use a theoretical $1,000 investment to show how it's done.

On Monday, you take $300 and make six trades at $50 each. You lose two trades but win four and end the day with a 10% gain. It takes about two or three days for your cash to settle from your trades. So on Wednesday, you get back $330 to trade on Thursday.

On Tuesday, you do the same thing with $300 and make more gains that you'll receive on Thursday to trade on Friday. And your Wednesday gains will have cleared in your accounts for trading by Monday.

But don't forget that on Thursday you can put in that $330 you made on the previous Monday and potentially turn that into more cash. Rinse and repeat.

This way, you can keep compounding your gains and rolling them over to another trading day. Each week, you get to make a total of 30 trades.

And since you're using a cash account, you don't have to have $25,000 in your account to begin. (Of course, after doing this for several months, you might end up with that amount anyway!)

Day Trade Beyond the U.S. Stock Market

One way to get outside FINRA's rules for day trading is to get outside FINRA's jurisdiction. One way to day trade without becoming an official PDT is by investing in foreign stock markets that don't have pattern day trader rules.

To do this, you'll need to set up an account with a broker that's also foreign. And keep in mind that trading on foreign markets can be very risky.

You can also work around the PDT requirement by trading on other markets such as options, futures, and the foreign exchange (forex) markets.

You can also work around the PDT requirement by trading on other markets such as options, futures, and the foreign exchange (forex) markets.

Remember that FINRA defines a pattern day trader as someone who makes at least four day trades within a five-day period.

If you open accounts with multiple brokerages, you can make several day trades spread out across your different accounts.

For example, you could have a Robinhood margin account and a Webull margin account. You could make three day trades in your Robinhood account and three in your Webull account every five days.

As you can imagine, this could get confusing quickly. So it's not an ideal solution.

Swing Trade

Instead of opening and closing positions in a single day, use a longer timeframe. Swing trading involves profiting from price movements over a couple of days or weeks. As long as you hold a position overnight, you'll be categorized as a swing trader, rather than a pattern day trader.

This is a good strategy for folks who don't want to sit glued to their monitors all day. And although you may not see huge gains, it can also be a safer strategy than making rapid-fire day trades.

Frequently Asked Questions

How many day trades can you make?

The Financial Industry Regulatory Authority (FINRA) defines a "pattern day trader" (PDT) as someone who uses a margin account to make four or more day trades within a five-day period. If you make more than that and don't have $25,000 in your account, you could be penalized.

Why don't PDT rules apply to the futures market?

The futures market is regulated primarily by the National Futures Association (NFA) and Commodities Futures Trading Commission (CFTC). These regulatory bodies don't have the same account requirements as FINRA.

The Bottom Line

Day trading can be an exhilarating -- and profitable -- experience. But it's not without its risks.

On top of the volatility that comes with this strategy, there are also regulatory risks.

If you try to day trade on margin and don't meet the pattern day trader minimum of $25,000 in your account, you could be cut off from making trades for months.

Try "day trading" with our cash account strategy. By compounding your gains, you could turn just a little bit of cash into a tidy profit.

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