Day trade without restriction: No pattern day trader rule in futures trading

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NinjaTrader Blog

One advantage of futures trading is that there is no PDT (Pattern Day Trader) rule that limits the number of trades per week. In contrast to the stock markets, which have restrictions on limiting day traders, traders are actually encouraged to trade day on futures markets.

As a futures trader, you can do long or short trades several times a day or a week without worrying about day trading restrictions.

What is the Pattern Day Trader (PDT) Rule?

According to the sample day trader rule, day traders of stocks and stock options must have at least 25,000 USD in their margin accounts. A “pattern day trader” is a trader who executes four or more round turn trades within 5 working days (on the same account).

In response to the dot-com equity bubble that began in the late 1990s, the PDT rule was introduced in 2001 by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). These restrictions were put in place to reduce excessive daytime stock trading.

Are there day trading restrictions for futures traders?

In contrast to trading stocks, futures trading actually offers day traders certain advantages.

Mainly there is no PDT rule governing how many trades futures traders can take in a week. All futures trading is based on a margin, essentially a good faith deposit, required to control a futures contract. This deposit in good faith enables futures traders to buy and sell contracts with a much higher relative value known as leverage.

With the leverage of futures, traders can control contracts with more value than their original investment. In fact, futures offer the best leverage for margin, far better than even the most aggressively leveraged ETFs.

Please note: financial leverage can result in losses in excess of the original margin and traders should be aware of the risks associated with trading futures.

Learn more about trading on futures day in this two minute video:

Are Futures Ideal For Day Trading?

Since day traders may only stay in a trade for a few minutes or even seconds, highly indebted assets like futures help make such short-term trading more financially viable.

Unlike stocks, futures trading requires less money to trade on a daily basis. The initial margin, or the margin required to maintain a position overnight, is much higher than the intraday margin requirements. In other words, futures markets encourage day trading while the stock market discourages intraday trading with the PDT rule.

How much money do you need for day trade futures?

As mentioned earlier, the futures margin is a good faith deposit required to control a futures contract. This is very different from the stock market, where the margin is comparable to a down payment.

The futures margin is generally a smaller percentage of the nominal value, typically 3-12% of the contract value. In comparison, the margin in stock trading can be up to 50% of face value.

Because of the incredible leverage futures offering, futures traders can open accounts with significantly less financial exposure. At NinjaTrader Brokerage, for example, you can open an account with only $ 400.

The intraday margins of futures are determined by brokers and clearing futures commission merchants (FCMs), and the margins of futures overnight are determined by the exchange. As long as you meet the margin requirements, you can trade as much as you want in the long term or in the short term.

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This article is for educational and informational purposes only and should not be viewed as a solicitation or recommendation for any product, service, or trading strategy. It contains content from independent persons or companies that are in no way affiliated with NinjaTrader Group (NTG) or any of its affiliates. The content and opinions expressed in this article do not necessarily reflect the official guidelines or positions of NinjaTrader or any of its affiliates.

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