There are two sets of day trading rules. One set has to do with laws and regulations and the other has to do with the discipline needed to be a successful day trader. At DayTradeSafe we teach a structured course that produces benchmarked professional traders. Our graduates learn rules- based trade entries, management, and automated exits for consistent trading results. The other day trading rules have to do with pattern day trading, margin requirements, and day trading taxes. It is important to know that day trading rules like pattern day trading that apply to trading stocks and options do not apply to trading commodity futures!

Basic Day Trading Rules

Stock and options traders have to contend with day trading rules that relate to trading frequency and how much of their trading is day trading. FINCA, the Financial Industry Regulatory Authority has day trading rules in this regard. When a stock day trader makes 4 or more day trades within 5 successive business days and the number of trades is more than 6 percent of their total trading activity during that time, the person’s broker will flag their account for pattern day trading. The result of this designation is that the person will need to maintain a margin account balance of at least $25,000 in order to trade. If your day trading is in commodity futures this does not apply to you.

How to Get Around Day Trading Rules

There are two ways to get around the rules regarding pattern day trading. If you want to trade stocks and options and want to avoid this designation, you need to keep close track of your trades and avoid making 4 or more day trades over 5 successive business days in which those day trades exceed 6% of your total trading activity over the same period. This is certainly possible but could be a real pain if you are making money on your trades and are forced to stop. The other way is to confine your day trading to commodity futures, not worry about the pattern day trading designation, and only need to maintain enough in your margin account to cover trades in progress.

Stock Day Trading Rules

When we talk about pattern day trading rules, we are talking about day trading stocks. Many who become interested in day trading only think of trading stocks as the news is always focused on how the Dow or S&P 500 are doing or how Apple, Tesla, Amazon, and the rest are dominating their market niches. But, if you want to make money at day trading, you need to consider factors like day trading taxes and pattern day trader designation. We encourage our students to look at day trading commodities and futures because of the preferential tax treatment on trading profits they enjoy versus the tax treatment for day trading stocks.

Forex Day Trading Rules

As with futures trading, Forex day trading is not subject to the pattern day trader rule. Forex, like futures trading, is under the jurisdiction of the NFA, the National Futures Association and not governed by FINCA. And, like with futures, Forex profits are subject to a 60/40 split between taxation as short and long term capital gains. An issue that traders should consider when looking at trading foreign currency pairs is that they may have to work during daylight hours in London or Tokyo if they want to capitalize on events driving Forex prices for currencies such as the euro, British pound, or yen.

Day Trading Options Rules

If you are day trading options you are subject to the same day trading rules as with day trading stocks. If you make 4 or more day trades over the course of 5 business days in succession and those trades exceed 6 percent of your total trading activity you will get flagged as a pattern day trader and will need to maintain at least $25,000 in your margin account at all times or risk having your ability to trade curtailed by your broker. As with stocks, this is the reason that many day traders choose commodity futures instead of options.

Crypto Day Trading Rules

None of the rules that govern day trading of stocks, options, futures, or Forex apply to day trading cryptocurrencies. You can buy and sell as much as you want and as often as you want with Bitcoin and the rest. However, you cannot set up a margin account, make short trades, use options trading strategies, or use any of the strategies that are used when trading commodity futures, stocks, or currencies. All you can do is to buy and sell. Cryptocurrency trading can be tempting because of the potential for profits but because there is no basis for rules-based trading we strongly advise against trying to “trade” in this arena.

Futures Day Trading Rules

If you want to avoid the hassle of maintaining a $25,000 balance in your margin account when your trades do not require that much, trade commodity futures. If you want to avoid having all of your profits taxed as short term capital gains, trade commodity futures instead of stocks or options. And, if you want to take advantage of rules-based trading strategies for consistent results, consider commodity futures trading instead of risking your money buying and selling cryptocurrencies.

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