How to start trading with a small account – Avoid pattern day trader rule
|When I started out trading back in 2020, there was the allure of starting with a small amount of money and turning it into a large fortune. Since then I have learned several ways of starting with a small amount of money, and growing it exponentially, without having to deal with the Pattern Day Trader Rule (PDT Rule) restrictions. What follows will be the best ways to avoid the PDT restrictions, but first, what is the PDT rule?
Pattern Day Trading Rule
The PDT Rule:
A pattern day trader (PDT) is a trader who executes four or more day trades within five business days using the same account. Pattern day trading is automatically identified by one’s broker, and PDTs are subject to additional regulatory scrutiny and limitations.
Unfortunately, Pattern day traders are required to hold $25,000 in their margin accounts. If the account drops below $25,000, they will be prohibited from making any further day trades until the balance is brought back up.
Alternatives:
To Avoid the $25,000 requirements there are a few ways around to start trading now with as little as $50:
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Avoid intraday trades.
By not opening and closing a position within one day, you can avoid the PDT rule entirely. Only open and close trades when one day has passed, you can save up your 3-free intraday trades for emergencies when you need to get out of a position. -
Trade Futures.
My favorite option is to trade the futures market, there are many brokers that let you trade futures with as little as $50. In the past I have grown accounts from $250 to $4,000 USD in just 2 short months. After trying futures and understanding the margin/movements you’ll probably be hooked just like me. Just be aware futures have a lot of leverage. -
Trade FOREX.
Foreign exchange (FOREX) markets, similarly to futures, are exempt from capital requirements. This means you can start trading FOREX with very little money. This is often safer than futures, because futures have a lot of leverage. -
Open an offshore trading account.
This is the real fourth option. However, I don’t really recommend this. Still, some traders might choose to do this because only US brokers have to follow the FINRA and SEC rules including PDT. This should be the last option because it is less safe than the others.
There we have it, my best options for new-traders to start with a small account and turn it into a large stockpile. It will take some time, but even if you only made 3% a day, you can turn $500 into $1,000,000 in one year! Pretty crazy to think about.
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