Paternalism Does Not Equal Protection: Reforming FINRA’s Pattern Day Trader Rule

FINRA created the PDT rule to protect traders. In reality, it’s done the opposite — locking Americans out of the market and driving riskier behavior. Here’s what we learned from those most affected as

At ICAN, we often talk about a simple but powerful truth: paternalism does not equal protection. Nowhere is that clearer than with FINRA’s Pattern Day Trader (PDT) Rule.

The PDT rule was created in the wake of the dot-com bubble, with the stated goal of protecting inexperienced traders from taking on too much risk. It limits anyone with less than $25,000 in their account to executing no more than 3 day trades in a 5-day period. At first glance, that may sound prudent. But as we’ve heard time and again, the real-world effects of the rule tell a very different story.

In practice, the rule has locked people out of the markets and, in many cases, pushed them into riskier trading behavior.

Recently, on our SEC Roundup podcast, we spoke with Ross Cameron — a successful day trader and founder of Warrior Trading — about why reforming this rule is long overdue. Ross has seen firsthand how the rule hurts more traders than it helps. His company provides software tools and education for day traders — including nearly two million subscribers on YouTube — and he’s watched countless skilled traders forced to find workarounds or give up altogether. As he explained, a rule that was meant to “protect” investors has actually created barriers to entry and driven more reckless behavior.

A rule intended to protect “novice or inexperienced” traders ironically forces them to increase their account size, which then grants them the ability to trade with up to $100,000 of borrowed money. This situation drastically raises the stakes and makes it very easy for an inexperienced trader to make a large mistake, thus putting the very people the rule was meant to protect in a position where the consequences of failure are much greater.

Watch a key moment from our interview below.

After sharing that clip, we asked traders how the rule has impacted them. Here’s what a few had to say:

“The PDT rule stops me from being an active participant in the market. I don’t have $25K to day trade, so I’m stuck making a couple of trades one day a week, which doesn’t help me grow my small account. I stopped day trading and got into futures trading since that doesn’t have a PDT rule, but I’d much rather day trade stocks. So for now, I’m stuck on the outside looking in until I save up $25K.”

“I have lost more of my money by being forced to hold on to bad positions because if I sold the stock I was in at the time, I would have been flagged as a Pattern Day Trader. If the reasoning is to protect me from blowing my account, I think they are highly confused. I also don’t even care about using leverage — I just use margin accounts so I can get my funds back in order to take a better trade if the trade I am in isn’t working out.”

“It has limited me from getting out of investments that I had a viable reason to exit when I needed to, resulting in further losses. It is unfair and judges the trader or investor based on monetary account size rather than real experience and knowledge.”

“The PDT rule forced me to open a margin account with more money than I could truly afford to risk, because without $25,000 I could not day trade in the United States. This meant that when I opened my account at Lightspeed with $30,000, I was automatically exposed to four times leverage. Losing $6,000 quickly dropped my balance below the threshold, and my account was frozen. If the PDT rule had not existed, I could have continued to trade responsibly with the remaining capital, gradually improving my skills. Instead, the rule limited my choices of brokerages, pushed me toward using more margin than I needed, and made it impossible to continue once I fell below $25,000. It took away the freedom to practice and grow at my own pace.”

These stories reveal the true nature of the problem: an arbitrary wealth barrier is a poor substitute for knowledge and experience. The $25,000 threshold has nothing to do with whether a person understands the markets, just as the Accredited Investor rule has nothing to do with whether someone is capable of making an informed investment. Both rely on an arbitrary dollar figure to decide who “deserves” market access, creating a two-tiered system that keeps ordinary Americans on the sidelines.

At ICAN, we believe regulators should focus on transparency and education, not exclusion. Protecting investors means equipping them with the tools and information to make informed choices — not denying them the freedom to participate until they hit a financial milestone.

Americans deserve choice in how they trade and invest. Excluding people based on arbitrary account balances hasn’t reduced risk — it amplified it.

Happily, on the same day ICAN posted the Ross Cameron SEC Roundup, FINRA announced that it had taken steps toward implementing long-awaited changes to the PDT rule, which will be sent to the SEC for final approval. We encourage the SEC to move quickly to finalize these long-overdue PDT reforms, and to take the same approach on Accredited Investor reform. Both are essential steps toward restoring fairness and freedom in our markets.