{"id":22102,"date":"2022-11-29T14:08:47","date_gmt":"2022-11-29T14:08:47","guid":{"rendered":"https:\/\/taxfix.com\/en-uk\/?p=22102"},"modified":"2022-11-29T14:19:50","modified_gmt":"2022-11-29T14:19:50","slug":"does-the-pdt-rule-apply-to-cash-accounts","status":"publish","type":"post","link":"https:\/\/taxfix.com\/en-uk\/investor-capital-gains-tax-returns\/does-the-pdt-rule-apply-to-cash-accounts\/","title":{"rendered":"Does the PDT rule apply to cash accounts?"},"content":{"rendered":"\n<p>If you\u2019re into trading, you\u2019ve probably heard of the USA-exclusive pdt rule. But if you\u2019ve ever wondered \u2018does the pdt rule apply to cash accounts?\u2019 we can help with that. \ud83d\udc47<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">First of all, what is PDT&#8230; and the PDT rule?<\/h2>\n\n\n\n<p>Many people know PDT as an abbreviation for Pacific Daylight Time &#8211; but we\u2019re talking trading here. And in the trading world, PDT stands for pattern day trader. This is basically a fancy way to describe \u2018more advanced\u2019 traders (versus amateur ones).<\/p>\n\n\n\n<p>To be considered a pattern day trader, you have to execute four or more day trades over a five day period.&nbsp;<\/p>\n\n\n\n<p>\ud83d\udea8 Now this is where it gets serious. \ud83d\udea8<\/p>\n\n\n\n<p>Not everyone is <em>allowed<\/em> to be a pattern day trader. And in the USA, if you\u2019re caught pattern day trading without meeting certain requirements, you\u2019ll be in violation of the PDT rule set by the <a href=\"https:\/\/www.finra.org\/#\/\" target=\"_blank\" rel=\"noreferrer noopener\">Financial Industry Regulatory Authority<\/a> (FINRA).\u00a0<\/p>\n\n\n\n<p>Told ya, it\u2019s pretty serious business. \ud83d\ude05<\/p>\n\n\n\n<p>The requirements to become a PDT are:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>You have a minimum of $25,000 in your brokerage account \ud83d\udcb5<\/li><\/ul>\n\n\n\n<p>That\u2019s literally it.<\/p>\n\n\n\n<p>Essentially, the PDT rule prevents beginners from diving in head first without armbands. After all, day trading is high-risk. \ud83e\udd37<\/p>\n\n\n\n<p>If you have more than $25,000 in your brokerage account, you\u2019re also considered a more sophisticated trader. If this describes you, then congrats &#8211; you\u2019re ready for the deep end!<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">So what\u2019s a cash account?<\/h2>\n\n\n\n<p>A cash account is a type of brokerage account&nbsp; &#8211; and a brokerage account is somewhere you buy and sell a variety of investments. Think stocks, bonds and mutual funds.<\/p>\n\n\n\n<p>When opening a brokerage account, you have the option to choose between a cash account or a margin account.<\/p>\n\n\n\n<p>The difference between the two? You guessed it &#8211; cash. \ud83d\udcb8<\/p>\n\n\n\n<p>With cash accounts, you can only make trades with the money available in your account. It\u2019s just like a regular shopping transaction:<\/p>\n\n\n<\/div> <!-- .c-body -->\n\n<div class=\"b-highlight-mini m-blue m-align-left\">\n    <div class=\"b-block-body\">\n        <p><span style=\"font-weight: 400;\">Your grocery shopping comes to \u00a350, so you pay \u00a350 with your debit card. But say your account has \u00a30 in it, your card declines and you don\u2019t get your groceries, right?<\/span><\/p>\n<p><span style=\"font-weight: 400;\">With a margin account, you can borrow money to buy securities (stocks, ETfs, etc). So even if you don\u2019t have \u00a350 to pay right now, you can still get your goods (as long as you\u2019ll be able to pay later).<\/span><\/p>\n\n    <\/div>\n<\/div> <!-- .b-highlight-mini -->\n\n<div class=\"c-body\">\n\n\n\n\n<h2 class=\"wp-block-heading\">So, does the PDT rule apply to cash accounts?<\/h2>\n\n\n\n<p>Nope! The PDT rule doesn\u2019t apply to cash accounts, only margin accounts. Cash accounts aren\u2019t generally used for day trading. Pattern day traders find them to be too limiting compared to margin accounts.<\/p>\n\n\n\n<p>The PDT rule may not apply to cash accounts but not so fast! \ud83d\udd90\ufe0f<\/p>\n\n\n<\/div> <!-- .c-body -->\n\n<div class=\"b-highlight-mini m-nude m-align-left\">\n    <div class=\"b-block-body\">\n        <h4>There are still other ways you can receive a penalty:<\/h4>\n<p><!-- \/wp:list --> <!-- wp:paragraph --><\/p>\n<h4>1. The good faith violation<\/h4>\n<p><!-- \/wp:list --> <!-- wp:paragraph --><\/p>\n<p>You buy a <a href=\"https:\/\/taxfix.com\/en-uk\/glossary\/securities\/\" target=\"_blank\" rel=\"noreferrer noopener\">security<\/a>, let\u2019s say a stock. You sell this newly purchased stock before paying for it with fully available funds in your account. You\u2019ve violated the good faith rule. Whoops.\ud83d\ude05<\/p>\n<h4>2. The freeriding violation<\/h4>\n<p><!-- \/wp:list --> <!-- wp:paragraph --><\/p>\n<p>You buy a stock, but then you sell a different stock to pay for your new one. So you\u2019re trading with cash that wasn&#8217;t already available in your account. Yikes! \ud83e\udd72<\/p>\n\n    <\/div>\n<\/div> <!-- .b-highlight-mini -->\n\n<div class=\"c-body\">\n\n\n\n\n<p>Confused? Just trade with fully available funds in your cash account. \ud83d\ude2c<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What happens if you break the PDT rule?<\/h2>\n\n\n\n<p>Brokers can lock your account as soon as they suspect you\u2019ve violated the PDT rule. \ud83d\udea9<\/p>\n\n\n\n<p>Many brokers will give you what is called a \u2018margin call\u2019. This is a chance to redeem yourself. A margin call means you\u2019ll have to deposit at least $25,000 into your account (the minimum you need to be allowed to day trade).<\/p>\n\n\n<\/div> <!-- .c-body -->\n\n<div class=\"b-highlight-mini m-yellow m-align-left\">\n    <div class=\"b-block-body\">\n        <h4>You have five days to do this before consequences follow:<\/h4>\n<p><!-- \/wp:paragraph --> <!-- wp:list --><\/p>\n<ul>\n<li>A 90-day account suspension \ud83e\udd72<\/li>\n<li>Limits on account activity<\/li>\n<li>Permanent account restrictions<\/li>\n<\/ul>\n\n    <\/div>\n<\/div> <!-- .b-highlight-mini -->\n\n<div class=\"c-body\">\n\n\n\n\n<p>Key takeaway: don\u2019t break the PDT rule\u203c\ufe0f<\/p>\n\n\n\n<p>Now you know all about the PDT rule, we bet the UK doesn\u2019t sound so bad after all. \ud83d\ude05<\/p>\n","protected":false},"excerpt":{"rendered":"<p>If you\u2019re into trading, you\u2019ve probably heard of the USA-exclusive pdt rule. But if you\u2019ve ever wondered \u2018does the pdt rule apply to cash accounts?\u2019 we can help with that. \ud83d\udc47 First of all, what is PDT&#8230; and the PDT rule? Many people know PDT as an abbreviation for Pacific Daylight Time &#8211; but we\u2019re [&hellip;]<\/p>\n","protected":false},"author":30,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[461,458],"tags":[419,418],"class_list":["post-22102","post","type-post","status-publish","format-standard","hentry","category-crypto","category-investor-capital-gains-tax-returns","tag-crypto","tag-invest"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.8 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Does the PDT rule apply to cash accounts? &#8211; Taxfix<\/title>\n<meta name=\"description\" content=\"If you&#039;re getting into trading and you\u2019ve been wonderering \u2018does the pdt rule apply to cash accounts?\u2019 Well, we can help with that!\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/taxfix.com\/en-uk\/investor-capital-gains-tax-returns\/does-the-pdt-rule-apply-to-cash-accounts\/\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Does the PDT rule apply to cash accounts? 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