Do Day Trading Rules Apply To Crypto/Bitcoin?

Crypto is slowly taking over the investing world, as thousands of new crypto investors have appeared seemingly overnight. So, it would be great to know whether you are free to trade crypto as much as you want or have to follow specific day trading rules like stocks. 

Day trading rules do not currently apply to Crypto or Bitcoin. Cryptocurrencies aren’t currently regulated by organizations such as the SEC or FINRA, so the rules aren’t the same as they are for stocks. You may buy or sell cryptocurrencies as much as you’d like throughout the day.

This article will explain more about day trading rules and why they don’t apply to crypto. You will also get an idea of how day trading crypto works and a few things you need to know before getting in on the action.

What Are Day Trading Rules?

Day trading is the process of buying and selling an asset within a short time frame, specifically a single day. The goal is to make a tiny profit with each trade and compound your gains over time.

Day trading rules are laid out by FINRA and the SEC. Investors must follow these rules when day trading to protect investors and companies. 

If an investor is a “pattern day-trader,” (meaning they made 4+ day trades within 5 business days), the broker places margin requirements on the customers’ account.

For example, pattern day traders must maintain an account balance of at least $25,000 to continue opening positions. However this is only the case if the trader is using a margin account. 

Stock or option day traders who have a cash account can trade as much as they want. 

For more information, you can read this document by the SEC.

Why Day Trading Rules Don’t Apply To Crypto

Since not many people can afford to have a trading account worth $25,000, day trading wasn’t an option for the vast majority of investors, or at least it was until recently.

With cryptocurrencies, there are no limits as to how many day trades you can execute or a minimum account size you need to have. This is the case because Bitcoin and other cryptos aren’t regulated by the SEC and are also quite challenging to regulate in general.

This means that you can open a small $200 crypto-trading account, and grow it much faster than you would a regular trading account. You would be able to execute as many trades per day as you want, and try out your day-trading strategies to the full extent.

Are There Any Other Rules You Need To Be Aware Of With Crypto?

Governments and regulatory bodies are slowly seeing the impact that cryptocurrency has had on the overall investing landscape and are starting to look at ways to regulate it.

The rules that you need to be aware of with Crypto include those set by exchanges including Binance and Coinbase. There are currently no other set rules when it comes to trading crypto, in the case of most developed countries. 

You can freely mine, day trade, or store cryptocurrency however you please in most countries… at least as of now. 

With that said, some governments like China, Indonesia, Russia, and others have completely banned or limited the use of cryptocurrencies in their economy.

Is Crypto Not Being Regulated a Good Thing?

The lack of cryptocurrency regulation isn’t necessarily a good thing. There’s more freedom with what you can do with crypto versus stocks, but there’s a significant risk for investors. Anyone can create a cryptocurrency, so many coins have no real value aside from hype, so the investment is risky.

Companies need to satisfy certain requirements to get their stock onto major exchanges, but that’s not the case with crypto. These risky investments can potentially lose a lot of money for traders.

With people being free to day trade crypto, many have even gone as far as to quit their jobs and become full-time crypto day-trades, many of whom have little to no trading experience.

This is a very risky move that will likely come back to bite them in the future.

How To Day Trade Crypto

So, since no day-trading rules apply to crypto, it would be beneficial to know a few things before indulging in the dangerous world of crypto day-trading.

One thing that’s very important to understand about the crypto market is that it’s very volatile, much more so than stocks. While volatility is generally considered bad, it is very suitable for a day-trading strategy. 

Some cryptos (like Ethereum) can go up 5% to 10% in a single day, if not more.

If you can get in on the right currencies at the right time, you can expect some impressive gains. To succeed over a more extended period, though, you also need to know when to get out (sell). 

Recently, it has become a trend for altcoins to appear seemingly overnight and sky-rocket in value, only to flop a few days or a week later.

How Does Crypto Trading Work?

Crypto operates in a decentralized market — it’s not issued by any central authority. It runs on a network of computers and you may buy it directly or through authorized exchanges. 

After buying crypto, that coin is stored in a secure e-wallet, much like the cash you keep in your regular wallet.

The coins you own are stored on a blockchain and exist as a digital record of ownership. You can freely transfer them to other users by sending them to their digital wallet or using them to fund purchases in places that support that cryptocurrency as a payment method.

Supply and demand are what mainly drive crypto prices. Supply is the number of released, destroyed, or lost coins, while demand is the number of people interested in buying those coins.

The media and key events around the world also influence how certain coins move, especially the well-known ones like Bitcoin, Ethereum, and a few others.

Final Thoughts

Many investors have made a fortune with day-trading, prompting others to become very interested in this strategy. However, regulations prevent everyone from joining, and those who do have to abide by certain rules.

Cryptos, who aren’t regulated in that regard, have opened a window of opportunity for aspiring day-traders to open and close as many positions as they want during a single day. To successfully day-trade crypto, knowing about volatility, when to buy in on a particular coin, and when to sell is essential.