The Pattern Day Trader Rule Hinders Financial Independence - The Objective Standard

Any adult in the United States can walk into a casino and gamble away his money, playing as many games as he wants. He can also walk into a luxury clothing store and buy as many items as he can afford. It’s his money—why shouldn’t he be free to use it as he pleases?

But in the stock market, he cannot. The Pattern Day Trader (PDT) rule, created and enforced by the Securities and Exchange Commission (SEC), prevents certain investors and traders from making transactions in accordance with their own judgment, hindering their ability to grow wealth and achieve their financial goals. Why? . . .

Endnotes

1. “Dotcom Bubble,” Investopedia, June 25, 2019, https://www.investopedia.com/terms/d/dotcom-bubble.asp (accessed October 27, 2020).

2. “Understanding The Pattern Day Trader Rule,” SpeedTrader, October 11, 2016, https://speedtrader.com/understanding-the-pattern-day-trader-rule/ (accessed October 27, 2020).

3. “Dotcom Bubble,” Investopedia.

4. “Pattern Day Trader,” U.S. Securities and Exchange Commission, https://www.sec.gov/fast-answers/answerspatterndaytraderhtm.html (accessed October 10, 2020).

5. “Margin Rules for Day Trading,” SEC Office of Investor Education and Advocacy, https://www.sec.gov/investor/alerts/daytrading.pdf (accessed October 10, 2020).

6. “Day-Trading Margin. SEC Approves Proposed Rule Change Relating to Day-Trading Margin Requirements,” April, 2001, https://www.finra.org/sites/default/files/NoticeDocument/p003881.pdf (accessed October 10, 2020); “Pattern Day Trader Rule Explained,” DayTradingz, https://daytradingz.com/pattern-day-trader/ (accessed October 10, 2020).

7. When this happens, you are still allowed to exit current positions in your account, but you can’t make additional transactions. See Karl Montevirgen, “What’s the Pattern Day Trading Rule? and How to Avoid Breaking It,” TD Ameritrade, March 18, 2020, https://tickertape.tdameritrade.com/trading/avoid-violating-pattern-day-trader-rule-18005 (accessed October 10, 2020).

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