How to Avoid Pattern Day Trading:
According to the Financial Industry Regulatory Authority (FINRA), a “Pattern Day Trader” is an individual with a margin account that completes four or more day trades (defined as buying and selling a security within the same trading day) within a five-day period. Under these rules, pattern day traders are required to keep a minimum equity value of $25,000 in their accounts each day that they participate in day trading.
This rule often scares new traders into thinking they need a minimum account value of $25,000 in order to get started actively trading the market, but fortunately, there are some ways around it. First, the rule only applies to margin accounts, so opening up a cash account with your broker sidesteps the rule altogether. Second, you can open up several brokerage accounts, essentially multiplying your day trading opportunities (three day trades every five business days for every open brokerage account). And lastly, you can save up or grow your portfolio to the minimum $25,000 and never have to worry about it ever again – that’s the preferred method.
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