How to Day Trade without $25k | TradingSim (2024)

May 18, 2022

For most retail traders the hurdle to begin day trading can be pretty high. One of the reasons for this is that you are limited to the number of day trades you can make if your account falls below a $25k threshold.

Pattern Day Trader Definition

The rule that limits how many day trades you make while under a $25k account size is called the Pattern Day Trader rule. This rule was implemented in 2001 after the dot com bubble and limits the number of day trades you can make to just 3 round-trip day trades in 5 days while your account is under $25k.

Many blame the rule on the SEC for wanting to limit the success of retail traders. However, the SEC claims to have implemented the rule for the safety of retail traders, many of whom may have blown up in the dot com crash of 2000-2002.

Whichever side you are on, there are ways to circumvent the rule. However, this may not be the best decision to make as a retail trader. In fact, being subject to the rule might help you remain disciplined in your trading decisions.

How many trades can you have without $25k?

According to FINRA rules, if you "execute four or more 'day trades' within five business days" you'll be flagged as a pattern day trader. Therefore, with a margin account under $25k, you'll only have four available day trades in a rolling 5-day period.

For all intents and purposes, most brokers count a day trade as a purchase and sell of the same stock or security on the same day. This applies for margin accounts only, as cash accounts will also carry restrictions on settling funds overnight. It does apply to options as well, however.

With most brokers, you can layer into a stock on the buy side, but as soon as you start selling those shares, it will count as a day trade.

Why do you have to have $25,000 to day trade?

The reason behind the rule, which was implemented in 2001, is that day trading can be extremely risky. This can be true for both the trader and the brokerage firm. When trading on margin, brokerages must have some sort of cushion in order to handle any insufficiencies in retail accounts that result from day trades. Generally, this isn't a problem, but risks are involved.

In fact, some brokerage firms implement even stricter "house rules" for margin requirements depending on the type of stock, the volatility, and your risk profile. Brokerages are in the business of making money, but they must also protect themselves.

You may be wondering how this affects you if you are good at risk management? And that is a valid question. In general, the rule does limit the ability of market participants to place more trades. However, most retail traders are not successful to begin with. For this reason, it can be a good barrier to entry for traders who want to risk their hard-earned money in the market.

Do you need $25k to day trade penny stocks?

In short, yes. It doesn't really matter what type of stock, or what the stock price is, you will need to maintain a $25k balance in order to avoid the limitations placed on smaller accounts. Penny stocks can be lucrative and volatile, but they still operate under the same rules as higher-priced stocks.

That being said, there are ways to get around the $25k limit, and in the end, it doesn't prohibit you from trading and holding positions overnight, either. We'll discuss these options in a moment.

Where can I day trade without $25k?

There really aren't that many options for day trading without $25k. As a rule of thumb, you must find an international broker who will allow you to deposit money with them. If you are living in the US, this is a very short list -- like, one broker.

However, if you are outside the US, you have at least one other option, TradeZero. Here are the two:

Capital Markets Elite Group (CMEG)

CMEG is based out of Trinidad, though their banking is also handled through a London bank, if you so choose. The author of this post has used CMEG before and had a good experience.

Although they allow you to open an accountwith as little as $500on their active trading service, margin goes all the way up to 6:1 at an account balance around $2500.

While using the service, it was very reliable, with order executions lightning fast. The only thing we would complain about is commissions. With a small account, commissions and fees can add up really fast. So can network fees, wiring fees, and platform fees. Just be aware of this.

For that reason, we don't recommend starting with too small of an account balance.

One positive of CMEG is that they do have access to hard-to-borrow stocks. So, if you’re a short seller, this may be of interest to you. Regardless, it will likely cost you about $300+ just to get started with either the DAS or Sterling trading platforms, along with wiring fees, etc.

TradeZero International

TradeZerois another broker that circumvents the pattern day trading rule. The company is based out of the Bahamas. However, note that the brokerage does not allow accounts from U.S. citizens. This is a bit disappointing considering that you can open a margin trading account for as little as $500.

They do offer a brokerage for US and Canadian clients, now. However, these accounts are limited by the PDT rule.

The international brokerage offers higher leverage of up to 6:1 when you deposit $2,500 or more. Limit orders are offered free of cost and regular market orders come at a certain fee.

TradeZero offers its own proprietary trading platform that can be downloaded or accessed via the web. Other versions include dedicated smartphone apps as well.

There is also a free demo version for you to test drive their platform. Like CMEG, they offer hard-to-borrow stock locates.

Is there any way to day trade without $25k?

Aside from choosing an international broker, there are ways to circumvent the $25k rule. One way to do this is to simply limit your trades and become a well-trained sniper when it comes to your day trading strategy. You could also open a cash-only account. Some traders like to trade futures and forex to avoid the PDT rule. And, lastly, you could open multiple accounts in order to have more available trades.

Let's look at each one of these options.

1. Become highly selective with your strategy

This goes without saying, but the more selective you are with your trades, the more you're likely to succeed in trading. Most new traders struggle with the habit of over-trading. It's natural to believe that more trades will equal more money. But this just isn't the case in day trading.

Being subject to the pattern day trading rule can serve a few good purposes which we outline here:

• forcing you to become selective in your stock trading
• limiting your time in the market and thereby increasing your study time
• increasing your observation skills
• pushing you to become patient

So, not all that you hear about the PDT rule is bad. We like to say that if you can't make it while under PDT, then you may have a hard time over PDT. Having more money and more trades doesn't always equate to making more money. Use your time below $25k and become very disciplined. It will pay off in the end.

2. Open a CASH-ONLY account

Avoiding margin altogether can be a wise decision for most newbie traders. Margin is a double-edged sword. Yes, it can give you more leverage and more trades, but it can also bring swift destruction when used improperly.

Opening a cash-only account will force you to only trade the available funds you have in your account. Similar to the benefits we mentioned above, this gives you enough time to study a single strategy, master it, and work your way out of a small account over time. This way, you prove to yourself that you have the discipline needed to trade with bigger size.

Without discipline in a small account and fewer trades, you're unlikely to maintain discipline with a larger account and more trades. Take this into consideration.

3. Open Multiple Brokerage accounts

If having patience or a cash account isn't enough, you can always open multiple accounts with different brokerage houses. In fact, you can open a margin and a cash account with most brokerage firms. Here are the pros and cons of doing this:

Generally speaking, opening multiple brokerages can be a wise thing to do. You can consider the extra accounts as a hedge. If one broker goes down, at least you have another that may be working.

Also, it offers you the ability to add more available day trades to your schedule. This way, if the market is hot and there are a lot of opportunities, you can take advantage of those opportunities instead of waiting.

4. Trade Forex and Futures to avoid the $25k minimum

In addition to having an offshore account, day traders can avoid the PDT Rule by trading foreign currency, cryptocurrencies, or futures. Most of these asset classes only require a minimal amount of starting cash. In fact, you can open an account with many brokers for just a few thousand dollars.

Some things to watch out for, however, are the massive amounts of leverage inherent with trading these accounts. Some forex and futures brokers will give you 100x leverage or more. You’ll need to be disciplined to know how to trade Forex and Crypto while managing your risk.

Can you day trade on Robinhood without $25k?

Unfortunately, no. Robinhood is subject to the same FINRA and SEC regulations as all other brokers. Therefore, whether you are using TDAmeritrade, Robinhood, WeBull, or any other popular "free commission" broker, you will still fall prey to the same $25k day trading account balance rule.

That being said, you can use some of the workarounds we mentioned above, if you still want to use Robinhood as your broker. Robinhood could be one of your accounts, and you could split your money and open a second account elsewhere. While this would cut your buying power in half, it would still allow you more trades.

Therein lies your decision: fewer trades with more buying power, or more trades with less buying power.

How to day trade on webull without $25k?

In order to day trade on WeBull without $25k, you will have to either open a cash account with WeBull, or limit the number of day trades that you make within a 5-day period. Theoretically, you could open a cash account and a margin account with Webull.

Trade without $25k example

Let's say that you have $10k of disposable income that you want to wire into a broker and begin day trading. With $10k, you have a couple of options.

Option 1: Cash Account

Wire the entire amount into a cash account and then divvy up each trade according to a certain size. Let's say you want to be able to place two day-trades per day. If that's the case, you could trade using $1000 of your $10,000 account, placing two day-trades. This leaves $8000 remaining in your balance. The remaining $2k you used on that day will take 3 days to reconcile.

The next day, you do the same thing. You make two day-trades using $1000 for each. At the end of the day, you'll have $6000 left to day trade while the first and second days' money is reconciling.

Repeat this pattern and you'll have a steady flow of cash available to day trade, while your used cash is reconciling.

Option 2: Cash + Margin Account

In this scenario, you can split the $10k into a cash account and a margin account. Let's say you split it equally. Then, you will have $5k in a cash account subject to the same example we gave above, but you will also have a $5k margin account.

The addition of the margin account will not give you any more trades than you would have with a cash account. Instead, it will limit your reconciliation out to 5 days, instead 3. What it will give you, though, is the use of leverage.

Therefore, the only real benefit of having a cash + margin account is to use the leverage in the margin account when it is necessary.

What happens if you day trade without $25k?

Don't be frightened, you won't get beheaded for over-trading while under $25k. What will happen is that the brokerage will limit your ability to place new trades if you trade more than 3 day-trades in a 5-day period. They will also label you as a pattern day trader.

Once they do this, you have a few options.

1. Ask for a PDT rule waiver from your brokerage
2. Wait 90 days for the PDT rule to clear

Most brokerages will allow at least one, if not more than one waiver if you place too many day trades without $25. You simply contact customer support and ask for it.

If you're lucky, you might not get labeled as a pattern day trader on the first strikeout. However, you should be cognizant of how many trades you have made within each 5-day period so that your account doesn't get stuck. Many brokerages will keep track of your available day trades to help you stay on top of it.

How to avoid the PDT Rule while learning to trade?

One of the best ways to avoid the PDT rule while learning how to trade is to use a realistic simulator or stock market replay. TradingSim offers a life-like market replay simulator that allows you to search for any day in the market within the past three years, push play, and relive the entire market for that day -- scanners, level 2, and all.

This way, you can practice your strategies and prove consistency to yourself long before you begin struggling with the PDT rule. You can help eliminate the emotional pitfalls that plague most traders by honing your edge in the markets first.

We hope this tutorial has helped you understand how to day trade without $25k, and if we can help you along your trading journey, please reach out!

For more info on the Pattern Day Trader Rule, check out our PDT page.