PDT Designation and How to get Around It

The PDT designation or Pattern Day Trade designation, simply put, is a law intended to discourage over-trading.  The SEC states that you qualify as a Pattern Day Trader if you make 4 or more day trades in 5 business days.  If you meet this designation, you are required to maintain at least $25,000 in your brokerage account.  As a result, brokerages have limited all accounts with less than $25,000 to a maximum of 3 day trades per 5 business days.

Q: Why Have a PDT Designation?

As stated above, it is to discourage over-trading.  New traders have a tendency to have FOMO and will over-trade and end up losing money.  Limiting the number of trades you can make forces you to be more selective and can help save your account from being depleted.  The laws in the US are far more strict than in other nations around the world.  Some nations have no minimum whatsoever; we will come back to that in a bit.

A: For Your Own Good

I will not encourage anyone to work around this rule as it is a safety feature for your own good.  Over-trading is one of the easiest ways to lose money.  That being said, I have established a way to work around it for my own personal trading, with a few rules to limit my personal risk.  Every dime I put into the markets comes from outside my family’s budget and outside my retirement accounts.  It is fine to take risks but don’t risk what you can’t afford to lose.  I have funded my accounts with side hustles and gains from within the markets.

3 Ways to Avoid the PDT Designation

Hold trades overnight sounds simple enough, right?  A day trade is a position you enter and exit within the same business day.  After hours and pre-market trades are counted toward the business day on the calendar day they are made.  If you hold a position overnight, it is not a day trade.

One of my favorite strategies is look for stocks that are likely to “gap-up” overnight.  This strategy requires only a few minutes a day.  I run a scan for stocks around 3:00 pm each day, looking for stocks that have gained at least 5% during the trading day, cost between $1 and $10 per share and are closing near their high of the day.  If there is no expected news such as earnings being declared overnight, I will take a position near the close and plan to sell at opening the next day.  You can many times get a 5-10% gain, and even if it doesn’t work out you can usually at least break even or sell for a small loss.  For me, the reward outweighs the risk.  The most important thing to remember is to cut your losses quickly when a stock moves against you.

Open multiple accounts is another easy way to work around the rules, but can stretch your resources thin if you have a small account, say under $5000.  If you have between $5,000 and $10,000, you can split your cash between 2 accounts at separate brokerages and double your day trades from 3 to 6 per business day.  I have the majority of my trading capital in an E*Trade margin account.  Here is a link to the best brokerage to use based on your needs.

Open an off-shore account with SureTrader! is an international brokerage based in the Bahamas and therefore, outside of SEC regulation.  They are not allowed to solicit US based customers. They can’t even pay referral fees to people like me who steer new customers in their direction.  SureTrader does have some advantages such as no PDT rule and 6:1 margin accounts.

There are significant downsides that must be noted.  Sending money to offshore accounts is costly.  I funded my account using a Visa debit card linked to a business checking account with First Citizens Bank.  SureTrader charged a 3.5% processing fee and my bank tacked on another 2% as an international transaction fee.  I was charged $167.10 in processing fees to fund my account with $3,000.  In addition, I had to call my bank to set up a travel notification and extend my daily spending limit.  I have not tried to withdraw money from the account yet but have heard it can be difficult, too.  Follow this blog, I will update everyone when that time comes.

Another downside is very lousy executions.  Historically, when I trade with E*Trade, they will execute my trades in the best manner possible for me, their customer; SureTrader does not.  For example, with E*trade, if I place a Limit Sell Order for $3.50 but the price is currently $3.60, E*Trade will execute the order at $3.60 or very close to it.  SureTrader will execute the trade at $3.60 but only give me $3.50 and keep the other $0.10 for themselves.  You can’t complain to anyone because they fall outside of all US laws and jurisdictions.  They have higher fees than the mainstream US brokerages, too.  Commissions are typically between $5-$7 at most discount US based brokerages, SureTrader’s minimum is $5, maximum of $50, based on $0.01 per share.

Final Notes and Thoughts

The Pattern Day Trade rule is there for your protection.  After dealing with SureTrader, I recommend against them.  If you really want to trade, the best way is to open another account and use the gap-up strategy.  It is vitally important that you protect your account for a massive loss while you are learning.  No one trade will make you rich but one trade can bankrupt you.  You can read about me learning that lesson the hard way here.

I’m not yet totally sure of the tax implications of my new offshore account.  You’ll want to consult with an accountant or tax expert for that.  Just remember to answer all questions honestly, and keep in mind that gains made in the markets are always taxable.  US Citizens are required by federal law to report all income and pay taxes accordingly.

All my trades can be found here: is the social media for traders.  I encourage you to post all your trades as well.

Thanks for reading and happy trading!  Follow me on twitter for all trades, live!