Kardec Trader breaks down the Pattern Day Trader rule: you need $25,000 to make more than three day trades in five trading days. Only trade money you can afford to lose, and start small until you're consistent. Cash accounts, options, futures, crypto, and forex let you work around the rule.
Questions this video answers
$25,000
A trade that is opened and closed the same day (e.g., open Monday and close Monday).
The speaker states it does not settle until Thursday (i.e., settlement occurs two business days later).
Chapters
How much money do I need to start day trading? So this is a very popular question a lot of new beginner traders have. My first thing for everyone would be make sure the money you guys used to trade with is money that is yours, money that you can afford to lose. The reason being is the financial markets are extremely, extremely risky. I will be the first to tell you guys like it is risky. It is hard. I know a lot of people kind of make trading so easy. It's like a walk in the park, you go trade on the beach. That is not the case. It's extremely risky and your capital will be at risk. So if, if you are using any sorts of money, be it $100 or $10,000, please make sure that you guys are in a position to lose that money. Because I see so many traders borrow money or use money that is, you know, for something else, for rent or whatever the case is. And they put themselves at such a disadvantage by trading with that capital. So that's number one. Now let's say you get over the number one hump. The question comes, how much do I need to day trade? Now, as I mentioned before, you can day trade with $500, $100, $2,000. It also depends a little bit on what capital markets are trading stocks. You have to keep in mind that you can trade with any amount. But there is something called a PDT rule. On a PDT rule, you need to have $25,000 or more to take on more than three day trades in a five day period. So just to break down what is a day trade, right, a day trade is considered a trade that is opened and closed the same day. If I open a trade on Monday morning and I close it Monday afternoon, that is considered one day trade. On a PDT rule, I can only take three day trades in a time period of five trading days. If I open a trade on Monday and I close the trade on Tuesday, that is not considered a day trade. So once again, for people that are looking to trade stocks, people that are looking to trade equities, you can trade with any amount. But if you want to take active day trades, you will need more than $25,000 in your brokerage account. Now, if you are trading options, right, one way to offset this is to have a cash account. So I see a lot of traders that'll have $5,000 or $7,000 and they are day trading options. What they will do is they will have a cash account and not a margin account for option trades. Your trades settle the next Business day. What that means is if you take a trade Monday and you close it Monday, that is one day trade. But on Tuesday, that day trade becomes available again. The trade settles where? In equities or stocks. If you take a trade Monday and close it on Monday, the trade does not settle until Thursday. That's where people with cash accounts are able to utilize their cash more. They can kind of, I guess, override the PDT rule. Now, if you're trading crypto, if you're trading forex, if you're trading CFDs, if you're trading other financial instruments, from what I know, there's no like restriction on what you can or can't trade in terms of cash value. And even for stocks and equities, as I was mentioning, you can trade with any amount you can. It's just with stocks there is the PDT rule and even, you know, options, there's the PDT rule. Now when you go into futures, same thing, futures don't really have that level of restriction. You can go and you can take on trades, but it's just with stocks and options, from what I've know so far, you should be good. The main thing I would focus on if you're starting to trade is keep your capital size minimal. Don't start with a lot of money. You don't want to start tomorrow and say I'm going to put in $10,000 in the market or 20,000 or 5,000 or whatever, whatever that number is for you without having a good foundation of the market, a foundation of yourself until those things are done. I would start with minimal capital just to get a flow of the market, just to get an understanding of yourself. And then I would look to put more money once you find a certain amount of success with the capital you have put in initially. Last thing I would do, as I mentioned earlier, and I emphasize on this a lot, is guys, please make sure you only invest money that you can lose. Like, please. I see so many traders invest money they can't lose and they put themselves in such a disadvantage and I hate, hate, hate to see that. So make sure that is not you. With that being said, I hope you guys found value in this video. I hope to see you guys get more involved in the markets the right way. And if you like this video, please give it a thumbs up and I will see you guys in the next video. Thank you.
