Day trading with a brokerage such as Robinhood is great as long as you follow the day trade rules set by the platform. If you want to know how to day trade without 25K then you are in the right place.
The Pattern Day Trading (PDT) rule is one of the regulations used by Robinhood to protect investors. When a margin account user executes four or more day trades in a five-day trading period in a row, they are considered pattern day traders. When an account is marked as a pattern day trade, it is subject to a 90-day freeze penalty, which means no purchasing or selling of stocks or options for the duration of the probation period.
Unless you have at least $25,000 in portfolio value (excluding any cryptocurrency positions) in your Instant or Gold brokerage account at the end of the preceding day, you're normally limited to no more than three-day trades in a five-day period.
Can You Day Trade Without 25K? That is a question asked among traders. However, it is very possible to day trade without 25K. You just need to follow some tricks to get that done.
That said, in this article, I will show you how to day trade on Robinhood or any other brokerage without 25K.
CHECK ALSO: How Many Day Trades Can You Make On Robinhood?
Table of Contents
Understanding the PDT Rule
Traders with less than $25,000 in their margin account are only allowed to make three-day trades in a rolling five-day period, according to the PDT. So, if you make three-day transactions on Monday, you won't be able to make any more until the following Monday.
Many would-be day traders either give up or transfer their focus to swing trading or the futures market after learning this.
While those are valid ways, day trading stocks with less than $25,000 in your trading account is still possible.
CHECK ALSO: How to Get Unlimited Day Trades On Robinhood?
Can You Day Trade On Robinhood Without 25K?
Yes, you can day trade on Robinhood even if your account doesn't match the minimum requirements ($25,000 or more). You just need to follow some simple tricks to get started with day trading without 25K.
CHECK ALSO: What Happens If You Are Marked As A Pattern Day Trader On Robinhood?
4 Ways to Day Trade On Robinhood Without 25K
Below, we have highlighted 4 ways to day trade on Robinhood without 25K.
1. Open Multiple Brokerage Accounts
A great way to day trade without 25K is by opening many brokerage accounts. This is a common strategy suggested by many day trading experts. There are three more day trades each rolling five-day period for each additional brokerage account you open.
Unless you're using a scalping method, most traders will be satisfied with six or nine-day transactions every week, therefore this is a reasonable option. You may, however, end up spreading your funds too thin.
You already have a tiny sum of money to work with, and further breaking it up could slow down your progress. You're obliged to create lower position sizes than you could have chosen otherwise.
For individuals with account amounts beyond the PDT ($25,000 and up), I believe this strategy makes sense. If it's any smaller, I believe you're spreading yourself too thin.
This, however, is highly dependent on the asset class you trade.
Because of the significant volatility associated with penny stocks, your average position size of $20,000 still might be $1,000 or $2,000 if you trade them.
One of the major advantages of this strategy is that many discount brokerages now offer commission-free trading.
Because a $10 round trip on a $1,000 trade already puts you 1% in the hole, commissions used to be the biggest deterrent to opening several brokerage accounts. All the difference is made on a one-day trade.
CHECK ALSO: How to Remove Pattern Day Trader Status on Robinhood
2. Open a Cash Account
It's unbelievable when I come across forums with day traders who don't realize that the PDT rule doesn't apply to cash accounts. In a cash account, you can make as many day trades as you like. However, there is a catch. You must be trading with cash that has been settled.
The SEC's cash settlement rules are one of the main reasons why margin accounts have become the de-facto standard account type in the United States.
According to the rules, when you sell a position in your brokerage account, the cash proceeds must "settle." This implies you won't be able to use the money for two days following the transaction.
If you traded on Monday, you won't be able to utilize that money again until Thursday.
So, if you have a $10,000 account and make a day trade with $4,000 of it, you can only trade with $6,000 until the remainder of your money settles. Day trading like this, as you may guess, can quickly become more prohibitive than dealing with the PDT rule in a margin account.
Cash accounts, in my opinion, shine when it comes to traders who aren't attempting to make money from their trading accounts.
A cash account becomes a simple way to conduct numerous day trades with real money without worrying about the PDT if you adhere to small position sizes and consider day trading as a learning experience rather than a rapid profit possibility.
CHECK ALSO: How to Transfer Stocks From Robinhood to TD Ameritrade
3. Use an Offshore Broker
Because some brokers aren't based in the US, traders can avoid some of the more stringent securities requirements by using an offshore broker.
However, be aware that some of those securities restrictions were put in place to protect you, and when you sign up with an offshore broker, you give up some of that safety. Be aware of all the dangers and pay special attention to the documents you sign!
Capital Markets Elite Group and TradeZero are the two most well-known offshore brokers at the moment. These brokers often charge greater commissions and subscription fees for their active trading platforms than their domestic rivals.
In addition to being able to avoid the PDT, offshore brokers frequently provide greater leverage than domestic brokers. It's fairly uncommon for an offshore broker to offer 6:1 intraday leverage.
CHECK ALSO: How to Transfer Stocks From Robinhood to Fidelity
4. Use One Brokerage Account
Having a single margin account where you keep all of your trading funds has its advantages as well. Of course, you'll be limited to three-day transactions every week, but for some traders, this restriction may be beneficial.
It wouldn't be unreasonable to assume that those with modest trading accounts have little or no successful trading experience. As a result, the PDT can occasionally work in their advantage.
It can also act as a function of discipline, in addition to simply slowing the rate of their losses. The PDT can force you to only take A+ setups, allowing you to conserve your powder until you notice a near-perfect opportunity.
CHECK ALSO: How to Transfer Buying Power From Robinhood to Bank
Final Thoughts on How to Day Trade On Robinhood Without 25K
Day trading on Robinhood is important for every trader. The day trade rule is precise you must have $25,000 in your brokerage account in order to day trade. You can still day trade on Robinhood without 25K. The aforementioned methods are the best tricks you can get to day trade on Robinhood or with any other brokerage account without 25K.
You got any other method? Let us know in the comments section or in our Telegram Forum.
References:
https://robinhood.com/us/en/support/articles/pattern-day-trading/
https://www.warriortrading.com/how-to-day-trade-without-25k/