Are you tired of working a typical 9-5 job, and do you want to have supplemental income for vacations, early retirement, or spending money? A lot of people with these ambitions lean toward the stock market. Long-term investments don’t provide instant gratification, which is why so many people consider day trading, but is it bad to be a pattern day trader?
It is not bad to be a pattern day trader if you know how to invest your money and have at least $25,000 in your account. The US PDT Rule just requires people to have enough money to prevent massive financial breakdowns. Aim for low-income opportunities around $200/day for the best chances of success.
Throughout this article, you’ll also learn the following information about being a pattern day trader:
- Pros of responsible pattern day trading
- Rules and regulations that you need to know before you get started
- Cons of pattern day trading for people of all experience levels
IMPORTANT SIDENOTE: I surveyed 1500+ traders to understand how social trading impacted their trading outcomes. The results shocked my belief system! Read my latest article: ‘Exploring Social Trading: Community, Profit, and Collaboration’ for my in-depth findings through the data collected from this survey!
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The Benefits of Pattern Day Trading
The dream of being a pattern day trader usually involves making thousands of dollars every day while relaxing on a sandy beach somewhere in paradise. The reality of it is quite different. You have to know when to invest, how much money is required, and so on. The good news is that there are countless benefits for those who know what they’re doing.
Here are five reasons why you should consider pattern trading:
- It’s legal almost anywhere in the world, despite minimal restrictions. The only serious regulation is the PDT Rule imposed by the US Government. Needless to say, it doesn’t apply to other countries. The PDT rule states that all pattern day traders must maintain at least $25,000 in equity in their account at all times.
- You have the potential to make money very quickly. Once you start learning how everything works, you’ll be able to make a few hundred dollars or more per day. There’s a reason that so many people get rich from this method. That being said, most investors lose money for a variety of reasons.
- It’s an excellent method of learning how the stock market works for low-investment accounts. If you’re interested in long-term investments and want to build a retirement account, pattern day trading can show you how the market functions, when you should take out your money, and when it is the right time to invest.
- Pattern day trading can show you which companies are worth investing in for the long run. Similar to the previous point, if you know which companies are giving you a decent income daily, you might want to consider putting larger portions into their business for the long haul.
- You can do it from anywhere that you want to go. Stay at home, go on vacation, and visit a family member. Pattern day trading has many perks, but working from anywhere with an internet connection is among the best of them. Don’t forget to calculate the cost of your trips to ensure that you’re making a profit.
As you can see, there are a lot of reasons that people love pattern day trading. It’s very freeing, incredibly stimulating to the mind, and it’s a unique way to make an income. With all good things comes a few downsides, all of which we’ll dive into in the next section.
Downsides of Being a Pattern Day Trader
You’ve seen all of the pros of PDT, including the grand idea of working from anywhere you’d like, making a bunch of money, and being your own boss. Unfortunately, we have to see the other side of the coin before you start investing your hard-earned money. Below, you’ll find a handful of cons of being a pattern day trader.
- If you don’t know what you’re doing, you can quickly lose a lot of money. The stock market is a scary place for those who are unaware of its ‘personality’. We live in a time when people can lose thousands of dollars overnight, so you have to make sure that you study enough before you get started.
- It can become addicting for those who enjoy gambling. If you know you have a problem every time you go to the casino, it’s a good idea to steer clear of pattern day trading. A small loss can turn into financial ruin if you’re not careful. Maintain an orderly portfolio and set low and high limits for quitting.
- The stock market is almost always unpredictable. Despite the gurus who claim to have some sort of hidden knowledge, nobody knows what will happen with the stock market. Even the most trusted experts are baffled by sudden swings, so don’t think you can rely on a steady income.
- Social media platforms play a significant role in the stock market curve. A tweet by Elon Musk saw Tesla’s stock drop by 12% in one day. Silly, unthoughtful comments and business decisions by companies in the stock market can have a massive impact on your income in a heartbeat.
- It’s not very affordable for a lot of would-be traders. The Samurai Trading Company mentions that not a lot of people can afford the $25,000 minimum account balance of pattern day trading. Day trading grants a decent amount of money, but you have to be financially stable before you start earning an income.
Now that you know the pros and cons of pattern day trading, it’s time for you to make an educated decision. For those of you who want a few more details, proceed to the next section. You’ll discover the answers to know whether or not PDT is a wise financial decision for you.
Is Pattern Day Trading Right for You?
Do you want to become a pattern day trader? Ask yourself these three questions:
- Do you have at least $25,000 to invest? It’s the minimum amount to allow you to pattern day trade in the US. Other countries don’t have this restriction, but make sure you do your research before you start trading. The last thing you want is to make a profit and spend it on paying fines to the local government. If you have the money and you’re ready to earn it, then you’re in the clear.
- Are you aware of the stock market’s rules? There are too many rules that you need to know about, but the stock market moves in an interesting way. Important elections, new products, relocations, and many other changes worldwide can influence the market. You need to keep an eye on the newspaper and online stock market sources as much as possible.
- Can you afford to lose everything you’ve invested? Most people who start investing can’t deal with the thought of losing it all. We’ve all heard the stories of people losing their homes, vehicles, and other possessions. If you want to maintain a comfortable lifestyle, you need to have a financial safety net. Never day trade with money that you’re not able to lose.
Author’s Recommendations: Top Trading and Investment Resources To Consider
Before concluding this article, I wanted to share few trading and investment resources that I have vetted, with the help of 50+ consistently profitable traders, for you. I am confident that you will greatly benefit in your trading journey by considering one or more of these resources.
- Roadmap to Becoming a Consistently Profitable Trader: I surveyed 5000+ traders (and interviewed 50+ profitable traders) to create the best possible step by step trading guide for you. Read my article: ‘7 Proven Steps To Profitable Trading’ to learn about my findings from surveying 5000+ traders, and to learn how these learnings can be leveraged to your advantage.
- Best Broker For Trading Success: I reviewed 15+ brokers and discussed my findings with 50+ consistently profitable traders. Post all that assessment, the best all round broker that our collective minds picked was M1 Finance. If you are looking to open a brokerage account, choose M1 Finance. You just cannot go wrong with it! Click Here To Sign Up for M1 Finance Today!
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Conclusion
Being a pattern day trader is often seen as risky and financially dangerous. However, if you know what you’re doing, you can make a decent income without too many hiccups. Many people around the world can live off of their money gained from pattern day trading.
Here’s a quick recap of the post:
- You need to have at least $25,000 in your account at all times.
- Focus on small gains rather than hitting the jackpot.
- Pattern day trading has a few government regulations in some countries.
- Try to have another source of income instead of relying solely on PDT.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
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