Transcription
Breaking news. Just moments ago, the SEC, the Securities and Exchange Commission, regulators of the US Financial Markets, approved a change to the pattern day trader rule, effectively reducing the minimum account size required in order to day trade the US equities market from $25,000 down to just $2,000.
This rule change will be effective 45 days from the regulatory notice, which is expected any moment. This is the first time we've had a change to the pattern day trader rule since it was first enacted after the boom and bust of the .com bubble on February 27th, 2001. This is a really big deal.
My entire career as a trader, I have been under the constraints of this pattern day trader rule. It has always meant that in order to day trade using settlement margin, which means your trade settles instantly, so you could trade as much as you want, you needed a minimum account size of $25,000. Even if you didn't want to use leverage in order just to get that settlement margin, you needed $25,000. Well, that is antiquated.
And as you might know, there is no such thing as a pattern day trader rule in the futures markets, in the crypto markets, or in the forex markets. By reducing the minimum account size to $2,000, this democratizes the market. It improves accessibility to the market. There should not be a barrier to entry of $25,000 in order to day trade. And in about 45 days, there won't be. This really is a big deal.
So, let's go ahead and jump on the screen share, and I'm just going to walk you through this filing, which was just posted here today. So, this is the announcement of the rule change posted by the SEC. As you may recall, in the fall of this past year, FINRA, the other regulator of the US financial markets, proposed this rule change. And as you might imagine, there were many brokers that were backing this rule change.
If you think about it, the $25,000 minimum not only hurt individual retail traders like you and I. It limits our access to the market, requiring more capital to begin with, but it also is hurting broker dealers because there's a whole cottage industry of offshore broker dealers that for the last 25 years have been drawing US traders to their services, which means who suffered the US broker dealers have lost all of those active traders. Those active traders generate a lot of volume and a lot of profit, especially for the commission free traders of today that benefit from payment for order flow. So those brokers were very incentivized to encourage regulators to make this change. It's always a good thing when the big money, these big lobbyists are also doing something that is in your benefit as well. It's more likely that it's going to get done.
And so while this reduction of the pattern day trader rule minimum from 25,000 down to 2,000 is a benefit to them, the clear benefit is also for us. We no longer have to rely on international broker dealers. We could trade right here in the United States with regulated and insured dealer broker dealers where our deposits are insured and protected. And I think that this is going to be a good thing for the market.
Now, if I jump onto the whiteboard, I'm going to walk you through what this is going to look like. So, this rule change reduced the PDT, oops, the the pattern day trader rule $25,000 minimum PDT uh from $25,000 down to just $2,000. However, as you may know, currently when you have a margin account, you also in addition to getting instant settlement, you get instant settlement, which is great. That means you could trade as many times as you want in one day. What you also get is four times intraday leverage. Okay, so this is kind of a big deal.
So now if we look at any any individual stock, whatever, let's say you've got a stock that you want to buy and you've got $25,000 in your account, even if you didn't want to use leverage, your $25,000 account times four gives you $100,000 of buying power. Now I personally was advocating that they separate margin from leverage. They say look leverage maybe you still have to have more money in your account in order to use leverage but margin which is just instant settlement that should be available no matter the account size even with just $100. Well unfortunately decoupling margin and leverage was not something that they were able to do in this rule change. And so all they simply did was keep the rule pretty much exactly as it is but change the minimum account size from 25,000 down to 2,000.
Now there were some changes in the way intraday margin will be c uh calculated based on current balance rather than the previous day's balance. So you're getting a real time um calculation of your of your margin which is going to protect you and also protect the brokers. But that's not exactly what I was hoping for. Nonetheless, this is still a a huge step in the right direction.
And so what this essentially means is that some brokers, and I know several that are already lined up ready to do this, will give you four times leverage with a $2,000 account, giving you $8,000 of buying power. While others may say you only get two times, and others might say you only get one times, equaling $2,000 or $4,000. In other words, it will be the discretion of the broker to decide how much leverage you get. This rule does not state that you are entitled to four times leverage with as little as $2,000. This will be the discre discretion of the broker. What it requires is that you are entitled to instant settlement right here. Instant settlement with a $2,000 account.
Now, while the rule states that um the earliest this can be implemented is in 45 days, it also states down here that there is an 18month roll out period, which means brokers have up to 18 months to implement this rule change. And that can be a little bit confusing. So, while there are some brokers that will no doubt implement this rule change in 45 days because they want all of those retail traders trading at their firm, generates more profit for the firm, right? Goes without saying. There may be other brokers that drag their feet. Wouldn't really make any sense to me why they would, but let's just say there's some brokers out there that really don't cater to day trading, you know, whatever. So, it's going to take them perhaps a little bit longer to set up the infrastructure and make the changes to calculate the intraday margin requirements and this and that. So, they have up to 18 months to roll this out.
But my guess, and I imagine you'd agree with me, is that the brokers that are top contenders for taking the market share for day trading are going to be rolling this out in 45 days from the regulatory notice. They're already ready to go. I've I've spoken with two brokers that are already today ready to offer $2,000 accounts in four times leverage. They were just not sure what the um notice period would be and how many days they would have to implement it. So now we know it'll be in 45 days.
So let's talk about what this is going to mean for the overall market. As you would imagine, it's going to increase the trading volume in the market because it's going to make the market even more accessible. Now, over the last 10 years, the market has become more accessible today than it ever was before through online uh tools, different brokers, apps, and just the um accessibility of of high speeded internet. Even with mobile apps, the market has never been more accessible than it is today. But that was at $25,000 minimum. If you had less than $25,000, you could day trade, but you were restricted to trading in cash. So, you could only trade the amount of cash you had in your account. So now you can cycle that money as much as you want. You can get in, get out, get in, get out.
Just as an example here, I'll just open up our um sim platform just so you can see what this looks like. So let me just open this up over on our simulator. And as always, I encourage you guys to practice this simulator before you ever put real money on the line. This is a simulator, so obviously um it's not real money, but I can buy by buy and then I can sell sell sell by buy sell sell. And I could do this all day long. Well, you could do this with real money as well. You could just get in, get out, get in, get out.
Now, if you were trading in a cash account, you would run out of buying power. You would run out of cash. So, you're restricted to only taking one or two trades. So, if you've seen me doing small account challenges in the past, what you'll know is that I would focus on taking just one trade a day when I was using one of the US broker dealers because that was the most trades I could take. Well, that's not going to be the same anymore. So, you better believe that I will be doing another small account challenge the day this rule is implemented. So, there'll be more information coming about that.
For those of you guys who have been sitting on the sidelines for the past several years or months or however long it's been since you gained some interest in the market, I would encourage you to start learning and to start practicing in a simulator starting as soon as possible. Because here's the deal. There are traders like myself who are going to hit the ground running the day this rule change takes effect and we see increased volume which will be increased liquidity which will likely result in increased volatility. I want to be able to capitalize on that. I'm going to hit the ground running because I've been trading for so long. I know exactly what to do when I start seeing stocks moving.
So, you've got 45 days right now to get into as good a shape as you possibly can in order to capitalize on the heightened volatility and volume that we're going to see likely during the summer months of trading. Now, typically summer is not the strongest or most exciting time of year, but that's not always been the case, and I don't think it's going to be the case this year because of this rule change.
So, what you're going to likely see is a lot of attention among retail traders on a select handful of stocks each day. And those stocks are going to get a huge amount of volume. When you get a lot of volume, it means it's easier to get in and out with large positions. Large positions means more profitability. These stocks, even just today, this stock is up 329% on 700 million shares of volume. And this is with currently the $25,000 pattern day trader rule. So, let's just say the amount of trading on this is able to triple, maybe quadruple. It could even it could likely be even higher than that. We're going to see unprecedented levels of volume. That is just going to be absolutely insane. It's something that we've really never seen before.
Although we've gotten a taste of it. We got a taste of it when a tremendous amount of volume came into the market during the pandemic. As you may recall that we had this lockdown, people were working from home. A lot of people got into the market. They started trading and we saw huge increases in volume, huge increases in volatility. And in 2020, I had what at that time was the best year of my career. And I made 10 times more in 2020 than I had made in my previous best year. That was really that's really saying something.
So, this is something that I'll tell you about trading. When the markets are cold, it's a double-edged sword. There's not as much volume in the market because people don't want to participate. there's not as many opportunities in the market because companies know that this isn't the time to put out headlines. So, they kind of pull back on it. So, less liquidity and fewer opportunities. Even if you saw a good setup, you can't take as much share size because the market is cooler and there's not as much liquidity. So, it means you make not just half as much as in a hot market, but even less. In fact, my cold market daily goal is 15th of my hot market daily goal. That's the reality. one one 25% roughly one one quarter to 1/5 for cold market to hot market. In other words, in a hot market I make four to five times as much money.
Now a hot market including a reduction in the pattern day trader rule meaning all of these traders are no are no longer using offshore broker dealers which charge fees and commissions but are trading using US broker dealers that are commission free like Weeble, Charles Schwab, maybe Robin Hood, some of the others. It's going to be it's going to be a game changer in terms of volume. So, I encourage you guys to get ready.
Now, if you haven't already checked out any of my full-length episodes on learning how to start trading, I'll put links to them here at the end of this episode and also put a link in the top of the comments where you guys can download one of my getting started guides that's going to walk you through my approach to reading technical analysis. I use candlestick charts. Candlestick charts are the universal language of the financial markets. Once you learn how to read them, you can apply them to any instrument, whether it's forex, futures, crypto, or stocks. I'm going to, of course, be applying them to stocks. So, take a look at that PDF and check out some of these other episodes. I think you guys will really enjoy that'll give you a deep dive into how to start day trading. The pattern day trader rule being reduced from $25,000 to just $2,000. This is a big deal.
All right, so I'm excited. I hope you guys are, too. Leave questions, comments down below, and I will see you for the next upload real soon. And I'll remind you as always that trading is risky and my results aren't typical. So manage your risk, take it slow, and I'll see you bright and early. I'll be streaming as always tomorrow at 700 a.m. Eastern Standard Time for members of Warrior Trading.