Day Trade Without Restriction: No Pattern Day Trader Rule in Futures Trading

By NinjaTrader


One benefit of futures trading is that there is no Pattern Day Trader (PDT) rule restricting how many trades can be placed in a week. In contrast to the stock market where restrictions are in place to limit day traders, traders are actually encouraged to day trade in futures markets.

As a futures trader, you can trade long or short multiple times a day or week without worrying about day trading restrictions.

What is the Pattern Day Trader (PDT) Rule?

The pattern day trader rule requires day traders of stocks and stock options to maintain a minimum of $25,000 in their margin accounts. A “pattern day trader” is defined as a trader who executes four or more round turn trades within 5 business days (on the same account).

In response to the dot-com stock bubble which began in the late 90’s, 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 day trading of stocks.

Are There Day Trading Restrictions for Futures Traders?

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

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

Futures leverage allows traders to control contracts with more value than their initial investment. In fact, futures offer the best leverage for the margin, much better than even the most aggressive leveraged ETFs.

Please note: Financial leverage can result in losses greater than the initial margin and traders should be aware of the risks involved in trading futures.

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

Are Futures Ideal for Day Trading?

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

Opposite of stocks, futures trading actually requires less money to day trade. Initial margin, or the margin required to maintain a position overnight, is much higher than intraday margin requirements. In other words, futures markets encourage day trading whereas the stock market discourages intraday trading with the PDT rule.

How Much Money Is Required to Day Trade Futures?

As previously mentioned, futures margin is a good-faith deposit required to control a futures contract. This is much different than in the stock market, where margin is comparable to a down payment.

Futures margin generally represents a smaller percentage of the notional value, typically 3-12% of the contract value. In comparison, margin in equities trading can be as much as 50% of face value.

Because of the incredible leverage futures offer, futures traders can open accounts with a significantly lower financial commitment. At NinjaTrader Brokerage, for example, you can open an account with only $400.

Futures intraday margins are determined by brokers and clearing Futures Commission Merchants (FCMs) and futures overnight margins are determined by the exchange. As long as you meet the margin requirements, you can trade as much as you want long or short term.

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