How to day trade crypto without 25K? If you are into trading for some time now, you may have come to know that there is a specific $25,000 day trade rule in place.
This rule is called the PDT or Pattern Day Trader Rule of the Federal regulations.
According to this rule, a trader needs to maintain equity of at least $25,000 during any session of day trading.
Here, a trader is referred to as that person who executes three intraday traders, at the minimum, within a period of five days on any exchange in the United States.
Now, if you are new to crypto day trading and do not have much capital, you may think that this is not a space you should tread on.
However, that is not true and there is no reason to fret or give up your idea.
In fact, you can start crypto day trading with as little as $100 if you only know the right way to get around with the myriad Pattern Day Trader limits.
How to Day Trade Crypto without 25K?
If you want to day trade crypto without $25K but do not know how exactly you should go about it, this is the right place to be since this article will tell you about it.
Going through this article you will not only know how exactly you can get started with your venture but also the ways to get around the PDT rule.
Apart from that, you also find a few tips and strategies to follow while day trading along with the pros and cons of each.
Choose the Right Brokers
It is extremely important that you choose the right brokers to day trade successfully and confidently.
You should research well before you finalize on one such crypto broker exchange based on a few specific parameters such as:
- Number of years in business
- Market reputation
- Types and volumes of coins traded and more.
Partnering with a reliable and reputed crypto exchange is very important because there are several ways in which some of the exchanges may avoid the mandatory rule of reporting their clients making day trades, limited or unlimited.
You should also choose an exchange that preferably offers zero-commission trading, allows opening more than one trading account, and where you can use the trading strategies to your benefit.
Some of the best crypto trading platforms that you may choose especially if you are a beginner in day trading and want to trade without $25K are Robinhood, Wealthsimple, and others.
Choose the Best Markets
If you wish to day trade crypto without $25,000, you will need to choose the right market to make the best out of your investment journey.
The crypto market can be extremely volatile and therefore you will come across both favorable and unfavorable market conditions.
You should choose the right market to buy and sell crypto so that you can make the most out of your day trades and since you have little money to invest or afford to lose, it is even more important.
Therefore, go through different trading signals, patterns, charts and graphs to judge the market conditions, if not predict them.
Choose the Right Strategies
Apart from trading in a few specific markets and with particular crypto coins, there are several crypto trading strategies that you can use to exploit the opportunities provided by this exciting crypto space.
This is very important when you want to trade without $25K and therefore needs a better understanding in detail.
This is because crypto trading strategies may vary from one user to another based on the style and preferences.
Just make sure that you are comfortable in navigating your way through while using these tactics and not get penalized for any wrong moves made. Here they are:
Three in Five
This is a specific trading strategy that you can use in any financial arena. In this process you trade only thrice within a period of five days.
The most significant benefit of practicing this form of trade is that you will not be penalized by the PDT Rule.
On the other hand, the disadvantage of this strategy is that you will need to be quite selective while choosing the trade signals as you will not be able to take the full advantage of this strategy otherwise.
While day trading crypto you should not enter and exit your positions very frequently.
This will not only increase the cost of trade because every time you may have to pay fees for it but will also need you to put a lot of effort to minimize the chances of incurring losses. It will eat up your profits.
Ideally, you should wait for a little longer after initiating your position to sell along with the wave but also avoid being designed as a swing trader.
Always consider the ATR or the Average True Range chart to compare the returns based on different time frames.
Choose the best one to maximize the expectancy in each trade, especially if you are doing only three day trades per week.
The advantage of this strategy is that you will be able to make more profits without missing out on the rally or any opportunity.
The downside of the process is that you may lose the chance to make profits at different price points if you fail to judge the right time and wait for too long.
Create Accounts with Multiple Exchanges
You should create day trading accounts with multiple exchanges or brokers because it will allow you to complete six or more day trades within a period of five days when and if you want to, depending on the number of accounts you open.
This is because with each account you get to make three more day trades within a five day rolling period.
This means that this strategy will help you to get around the PDT penalty.
On the other hand, in this process you will have little capital to trade which will reduce your income and slow down the rate of making profits in comparison to trading with a single account.
This is because you will be forced to go for smaller position sizes.
And, the commission to pay to every exchange will also affect your final profit if you do not choose those that allow making commission-free trades.
Also, keeping track of all the accounts for profit and loss evaluation for tax payment will be a hassle along with all the documents you need to gather and preserve to keep a proper track of the proceedings.
Open a Cash Account
If you did not know by now, be informed that you can even day trade crypto with a cash account as well.
This is a good process if you are okay with making small but unlimited trades without worrying about the PDT Rule and are not looking for making exceptional profits in a quick time.
The good thing about this strategy is that it will enable you to make as many trades as you want and can buy with or sell for any dollar amount you want.
And, if you did not know about it, also be informed that especially in day trading the PDT Rule does not apply.
However, the demerit of this process is that you will not have any more money to trade unless the previous ones are settled.
This is because you cannot make day trades on margin.
You may know that according to the cash settlement rule of the US Security and Exchange Commission or SEC you cannot use the cash without allowing a two-day window after the date of transaction.
Use an Offshore Broker
If you use an offshore broker while day trading crypto you will be able to get around some of the more restrictive and stricter security regulations, especially if you are residing in the United States.
Apart from the fact that you will have minimum regulations while trading, the offshore broker will also offer more leverage in comparison to the domestic brokers as their business and marketing policy. It can be as high as 6:1.
However, while signing with an offshore broker, you will enhance the risk factor at the same time.
Remember, the regulations that you try to avoid are also designed to protect you in some situations.
Therefore, if you do so, pay additional attention while going through the paperwork before signing. Also, be wary about the fees charged by the offshore brokers which are significantly higher than those charged by the domestic brokers.
It may include subscription charges apart from commissions on trades.
Avoid the Common Mistakes
Most of the beginners in crypto day trading make these mistakes, one or all of them, and end up losing money.
If you do not want that to happen to you then here are a few major and common mistakes that you should avoid.
Holding your trade for too long is one of the most significant mistakes.
Strange as it may sound since it is all about ‘day trade’ this is a mistake that you should certainly avoid.
Several day traders under the PDT making tend to enter a trade and when the closing time of a session is nearby they start to contemplate and rationalize their desire to hold a trade.
Most day traders do it thinking that it is just a matter of a day or 24 hours and they can get around using a day trade and make more profits.
However, nine out of ten times, this approach is proven to be wrong.
You will always be much better off if you use a day trade and close the trade in due time as well.
Ideally, when you are holding your position for too long, you are actually risking all your gains. Not only that.
You are also incurring some losses in terms of fees when you hold your position for too long.
Unless there is a truly A+ setup indicated on the daily chart, holding your trade for too long will leave you and your trade at the mercy of the market conditions knowing the fact that this is perhaps the most volatile market.
It will certainly be an utterly unwise move to make since you can lose all your profits in minutes or less than that.
Another common mistake to avoid is going for too big a position size due to PDT FOMO and in anticipation to make the most out of the limited opportunities to trade that you are provided with and make them really count.
Remember, there is no shortcut or any magic formula to grow your crypto account.
Even if you have a really A+ setup, rates of failure can be quite high and there is a high possibility of experiencing a losing streak, especially when you hold for quite a long time frame.
In worse case scenarios, this may put you out of the game entirely.
Some other common mistakes to avoid during day trade are not having enough knowledge about the trading system and/or the platform and not knowing the right time to move in and move out of your position and accounts.
Day trading with less than $25K is possible, though a bit riskier if you do not follow the right process. Thanks to this article, now that you at least know the basics you can start small to earn some additional cash to build an account.