Unlimited intraday trading: no pattern, day trader rule in futures trading

One of the advantages of futures trading is that there is no Pattern Day Trader (PDT) rule that limits the number of trades that can be made in a week. Unlike the stock market, where there are restrictions to limit day traders, it is actually encourages traders to trade during the day in the futures markets.

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

What is the Pattern Day Trader (PDT) rule?

The Model Day Trader Rule requires stock and stock option day traders to maintain a minimum of $25,000 in their margin accounts. A “day pattern trader” is defined as a trader who executes at least four trades per quarter turn within 5 business days (on the same account).

In response to the dot-com stock market 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 stock trading during the day.

Are there intraday trading restrictions for futures traders?

Unlike stock trading, futures trading offers certain advantages to day traders.

Mainly, there is no PDT rule that governs the number of futures trades traders can make in a week. All futures trading is based on margin, essentially a bona fide deposit required to control a futures contract. This good faith deposit is what allows futures traders to buy and sell contracts with much higher relative value, known as leverage.

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

Note: Leverage can lead to losses in excess of initial margin and traders should be aware of the risks associated with futures trading.

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

Are futures contracts ideal for day trading?

Since day traders can only stay on a trade for minutes or even seconds, high-leverage assets like futures help make short-term trades more financially feasible.

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

How much money does it take to trade futures contracts?

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

The margin for futures contracts is usually a smaller percentage of the theoretical value, typically 3-12% of the contract value. By comparison, the margin on stock trades can be as high as 50% of face value.

Due to the incredible supply of leveraged futures contracts, futures traders can open accounts with significantly less financial commitment. At NinjaTrader Brokerage, for example, you can open an account with only $400.

Intraday futures margins are determined by brokers and clearing by Futures Commission Traders (FCM) and overnight futures 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.

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