Pattern Day Trader Rule Doesn’t Apply To Futures

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As an equity trader, have you ever been locked out of trading due to a day trading violation? Or have you missed an opportunity due to short selling restrictions? Well in Futures Trading, the Pattern Day Trader Rule doesn’t apply so in this video I spoke with Director of Sales at NinjaTrader, Walter Sledz about the benefits of Day Trading Futures.

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Missed opportunities can be costly, so we will look at some of the restrictions in the United States for day trading cash equity products and compare that to day trading with futures.

Minimum Account Size
A pattern day trader who executes four or more round turns in a single security within a week is required to maintain a minimum equity of $25,000 in their brokerage account.

But a futures trader is not required to meet this minimum account size. In fact, as long as you maintain the minimum margin requirements for your positions, you can trade as frequently as you like at a size suitable to your trading needs.

An equity trader can only trade up to four times their maintenance margin excess on an intra-day basis. So if they have $30,000 maintenance excess available, they can only trade up to a value of $120,000. Exceed this amount and margin calls may further limit buying power and trading frequency.

With futures, that same margin may afford you the ability to trade a much larger notional value.

No Short Sale Restrictions
Another common struggle for equity day traders is that in order to short a security, there must be shares available to trade. And there are many reasons why shares may not be available.

In comparison, a futures trader does not have the same short sale restrictions. You can take a short position as easily as a long position.

Minimum Tick
When a trader shorts a stock, they are required to sell at a minimum of a tick above last traded price. This means in a down-trending market, an equity trader may never get to take a short position, thus losing out on a market opportunity. But futures trader can be short the market just as easily as being long.

As a futures trader, you can express your opinion long or short multiple times a day or week and you do not have to worry about day trading restrictions applicable to equities or the ability to take a short position in the market.

So why miss out on another opportunity because of restrictions? Make a move into futures.

Information in this post came from CME Group.

If you enjoyed this video here are more videos on the Benefits of Futures:

Explaining Physical & Cash Settlement

What is Rollover in Futures?

Bitcoin Futures vs Bitcoin Spot

Trading News & Events

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