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What Is The Pattern Day Trade Rule?
Written by Blake Levison
The pattern day trader rule, also known as the PDT rule is a rule dreaded by beginners and sometimes experienced traders. Many traders that are just starting off don't even know what the rule is and what it means for their trading. We'll explain what the pattern day trader rule is and how you can avoid it.
What Exactly Is The PDT Rule?
Ever since it was introduced back in 2001, traders have been aware of this restriction. The pattern day trader rule states that any trader with a trading account under $25K can only make three-day trades in a rolling five day period. Once their account reaches over $25K the rule no longer applies to them. This restriction often throws beginners off a little bit, but it's there to protect those who don't have a lot of experience. The PDT rule stops traders from going overboard. The rule can also teach traders some good habits for example only sticking to A+ setups. These habits will prevent them from making mistakes during trades and investments.
What Happens If You Don't Follow The Rule?
You'll definitely know about the rule, because your broker will let you know about it but if you choose to not listen and break the rule then your brokerage account will be frozen for 90 days. You can also get a notification from your brokerage firm and you might get a margin call. If this happens, you'll have 5 business days to add more money to your account in order to reach $25K.
Trading With A Cash Account
There are many ways to get around the pattern day trader rule and using a cash account is one of them. The PDT rule doesn't apply to those with a cash account, even if they have less than $25K. There is one issue with cash accounts and that's why margin accounts are more popular. The thing is, you can only trade with settled cash. This basically means that when you convert assets, you aren't aloud to use that cash for 2 days after the transaction date. This rule from the SEC's cash settlement rules makes trading hard for those with small accounts or very active traders. Cash accounts are great for inexperienced traders that want to try trading out without having to deal with the PDT rule.
Offshore Brokers
Opening an account with an offshore broker is a common way to get away from various rules and regulations, including the pattern day trader rule. If you're going to use an offshore broker, we suggest CMEG and TradeZero, but there are a few things that you should know before trying out any broker that isn't based in the United States. First of all, there are a few risks about using offshore brokers so you should pay very close attention to all the paperwork that they will make you sign. Check the rules and regulations and do some good research. Also, keep this in mind; some of the restrictions that you get to avoid with offshore brokers are there for your own good. Be careful and be sure that you aren't risking your safety.
In addition to the usual fees most brokers offer, the common offshore brokers also have commission fees and subscription fees that you'll have to pay. Consider whether all the risks and additional fees are worth it. They might be if you really want to get away from the PDT rule, but you'll have some other things to worry about. It all comes down to what you think is right for you and what suits your strategy best.
Some Other Ways To Get Around The PDT Rule
If you don't think opening a cash account or trying out an offshore broker is right for you, don't worry. There are still strategies that can help you that we will talk about right now.
Trade Options
Instead of settling for two days plus the transaction date (like when you use a cash account) options settle overnight. Plus, when you trade options you don't have to follow the PDT rule. Here's how trading options works: You buy put options and call options and then sell them on the options market. There are different kind of options contracts, but they're simply an agreement between the buyer and the seller or buyer to sell an asset at a price that they have agreed upon and at a date that has been determined earlier. These agreements are used in commodities and securities, as well as in real estate transactions. 
Trade Futures
Even if a future trader's account has less than $25K, they can still trade as much as they would like. A future's contract is a contract for assets bought at an agreed price, however they are delivered and paid for later, at a predetermined date. The assets are usually shares or commodities. In most cases, this contract settles on the day of its expiration. When this happens, the futures holder has to buy or sell the asset at the predetermined price that has been agreed upon.
Trading options and futures allows many traders to get into the markets and become active traders which they couldn't have done if they just opened a regular margin account. Trading futures and options has pros and cons but it is definitely something that you should look into and consider trying out if it seems like the right trading for you. These two kinds of trading are different but also bring a lot of the same benefits for beginner traders and also the more experienced ones.
To conclude, the bottom line is that you should not get discouraged by the PDT restriction. You can choose to avoid rules in many different ways, just make sure that everything is legit and you aren't being scammed. Do your research before you try anything. Of course every strategy that we have talked about has both pros and cons to it, but it's very possible that for you, the advantages outnumber the disadvantages and it is worth it.

About Author: 
Blake Levison

Blake Levison is a full-time technical stock trader. Blake's favorite style of trading is a combination of share trading, scalping, and swing trading. Blake is a very big on selling covered calls and is obsessed with stock trading!

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