Pattern Day Trading at Charles Schwab
If you have a brokerage account with Charles Schwab, you’ll have to deposit $25,000 if it’s flagged
as a pattern-day-trading account. There are several ways to prevent that from happening, however.
This article will show you how to day trade—legally—without needing to deposit $25,000 in your
account.
The securities regulators in America have this notorious little rule. It’s called the PDT rule, and it
requires any brokerage account that meets the definition of a pattern-day trading account
to have at least $25,000 in account equity in order to continue day trading. PDT accounts that fail to meet the $25,000 minimum can be frozen. And that wouldn’t be good at all.
Although the rule isn’t Schwab’s, the broker must abide by it because it, too, is required to follow securities regulations.
Justification
Why would the regulators have such a policy? They believe it helps protect investors from the risks inherent in day trading. Only sophisticated investors would have 25 grand sitting around to park into a brokerage account...or so the theory goes.
How Many Day Trades Does Charles Schwab Allow
Thankfully, there are many ways around the PDT rule. Here’s how it’s defined:
I. The account must place at least 4 day trades (of stocks, options, ETFs, or other securities) in a rolling five-business-day period.
II. The account must be a margin account.
III. The account’s day trades must account for 6%, at a minimum, of the account’s entire trading activity.
Any account that does not meet just one of the three criteria is not a PDT account and does not
have to bother with the $25,000 requirement.
Free Charles Schwab Account
Visit Schwab Website
Strategies for Eluding the PDT Regulation at Schwab
The first requirement we see is 4 day trades. If an account places fewer than this number, it’s not a PDT
account and doesn’t have to deposit $25,000.
You could also open a cash account
instead of a margin account, and this would avoid the PDT guideline. And finally, you can
keep your total day trades below 6% of total trades.
Schwab Day Trading Tools
Website
Schwab has a lot of useful trading tools, and all of them are free of charge. First on the list is the broker's website, which itself is capable
of placing trades for many security types, including stocks, options, ETFs, and fixed-income products.
There is a trade bar that sits at the bottom of the screen. It displays market indices and trading data for an entered ticker symbol.
Unfortunately, trades cannot be placed on it. If you click on the trade link, you will be taken to a web page where the order can be submitted.
What we really liked about Schwab's trade bar was the ability to show a small pop-up chart with a selection of time frames.
Full charting on the website comes with technical indicators, drawing tools, comparisons to other securities, and company events. What really
disappointed us was the inability to display a graph the width of the monitor.
thinkorswim
If your trading needs demand something more, you can download and install thinkorswim
free of charge. This powerful program has much better charting than the website offers. A chart can be displayed full screen, and colors are customizable. Price history can be set to tick-by-tick.
One feature that we really liked on Schwab's platform during my test drive was the Trade & Probability calculator that is integrated with the order ticket. It shows you the risk-reward payoff at certain dates, which can be adjusted.
Other great apps on the platform include Recognia for technical analysis, a security screener, and CNBC business news. thinkorswim also has direct-access routing.
Free Charles Schwab Account
Visit Schwab Website
Mobile App
If you're constantly on the go, like many other busy investors nowadays, you can manage your account and even trade securities with Schwab's user-friendly mobile app. It has a lot of handy features, including bill pay, check deposit, and funds transfer.
Every account you have with Schwab, including bank, futures, and securities accounts, are all listed after just one login on the app. Tapping on one of the accounts produces a new page that displays holdings and a bubble chart of the day's gain or loss.
The trading ticket on the app can submit orders for mutual funds, which is great because not all mobile apps incorporate this feature. Options, stocks, and ETFs can also be traded.
Updated on 2/3/2025.
Chad Morris is a financial writer with more than 20 years experience
as both an English teacher and an avid trader. When he isn’t writing
expert content for Brokerage-Review.com, Chad can usually be found
managing his portfolio or building a new home computer.
|