Pattern Day Trader Forex – Did you know that pattern day trader is a regulatory designation for equities? That is, for stock trading. It is not a “thing” for Forex.
Bottom line, you don’t need $25,000 to day-trade on Forex, you can even day-trade Forex with $10 (using micro lots).
But in case you wondering how to achieve this designation for stock trading? Worry not! We will go into the details of this regulatory designation. Once you understand it, you can take your first step towards achieving this designation.
Without any ado, let’s look at the definition and details of this designation.
Who is a Pattern day trader?
You can qualify as a pattern day trader only when you execute more than four-day trades within five business days. The trades need to be executed from a margin account. Also, the percentage of trade must be greater than 6% of the total trade activity within this time.
When you reach this designation, the FINRA requires you to have at least $ 25,000 in your brokerage account. It can be a blend of cash and securities. However, mutual funds held are not counted.
If your balance is below $ 25,000, you cannot execute day trades beyond it. You can execute day trades once your account reaches above $ 25,000 in balance. This rule aims to discourage excessive trading. With the help of this rule, only traders who are confident of their trading practices and have enough capital to cover them can place orders.
Many traders think it is a designation, but it is to separate the expert traders from the beginners. It is to prevent compulsive trading.
What things should you know before you become a pattern day trader forex?
There are a few things to be aware of before you achieve this designation. These include:
1. Only day-trades count:
Only when you’re selling the security or the asset within the same day, the trade will count. If you’re holding short or long positions overnight, you will exempt from this rule. If you do not have $ 25,000 in your account and still want to trade consistently, this exemption can come to your rescue.
2. Differs from standard day trader:
There is another designation that goes by the standard day trader. If you achieve it, you will require having $ 25,000 in your account. Many people confuse the pattern day trader with the standard day trader. However, both of them are starkly different.
3. five days for Margin call:
When you’re trading consistently, a margin call might get triggered. If you attain a pattern day trader status, you have five days to answer the margin call. Until that point in time, your leverage will restrict to just two times. If you have $25,000 in your forex account, you can trade only up to $ 50,000.
In case you’re not able to hone the margin call, your account will be restricted to cash for the next 90 days—either this or till the margin issue has been entirely resolved.
While this is the general rule but it might vary from one broker to another. Many brokers also allow traders to identify themselves as pattern day traders. You will not be required to meet the above criteria necessarily.
While it might be a matter of pride for some to attain the status, but it is not always the case. There are a few restrictions along with it.
You have to keep these restrictions in mind, and then only you can decide whether this status is something to brag about or to avoid gaining this status.
The “pattern day-trader” it is a regulatory status to help traders from overtrading equities or taking excessive risks. It does its job as many traders also confuse it with a pedestal and hence making a mistake.