Major Change Ahead for Day Traders: Smaller Investors Could Soon Day Trade Without $25K Account Minimum

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If you wanted to day trade stocks or options in the U.S., you had to abide by the pattern day trader rule, at least until now. That means if you make four or more trades in a margin account within five business days, you're considered a pattern day trader, and you'll have to have at least $25,000 in that account.

That could change soon. The Financial Industry Regulatory Authority recently approved amendments that would replace the fixed $25,000 minimum with a more flexible intraday maintenance margin rule instead. With this proposed change, day traders might only need to maintain enough margin or equity to support their positions throughout the day, which could, in turn, lower the entry barrier and open the door for more everyday investors.

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There are a few reasons this is happening. The original rule was adopted in the early 2000s after the dot-com bubble burst, when regulators worried that small and leveraged traders were taking huge risks, according to CNBC. But much has changed. Trading platforms offer commission-free trades, real-time risk-monitoring is better and many argue the old rule is outdated.

That said, the amendment is still pending final approval by the Securities and Exchange Commission. If approved, many smaller investors will be able to day trade without needing a large account balance.

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What This Means For You

If you're already day trading or thinking about starting, this amendment could make it much more accessible to the general public since you no longer need to maintain a minimum $25,000 account balance.

However, day trading is fast-paced and quite risky, and the market can turn on you in seconds. Before putting your hard earned money in the market, make sure you fully understand how your brokerage account works, since margin and cash accounts typically have different rules, and those differences can affect how quickly you can trade and how much you can lose.

And remember, the lower account minimum doesn't make trading easier. It just gives more people the chance to play the game, for better or worse.

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This article Major Change Ahead for Day Traders: Smaller Investors Could Soon Day Trade Without $25K Account Minimum originally appeared on Benzinga.com

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