When executing pair‐trading orders through Alpaca’s paper account, you need to simultaneously short and long one pair. During testing, the broker returned the error:
Insufficient day‐trading buying power, skipping order.
After investigation, it turns out that the paper account is a margin account type, so this error is triggered by the PDT rule.
PDT rule summary:
- If, within a rolling 5‐trading‐day period, a single margin account makes 4 or more “buy and sell (or sell short and buy to cover) within the same trading day” transactions, it is flagged as a Pattern Day Trader (PDT).
- Once the account is flagged as PDT, it cannot make a 5th (or further) day trade on that same day. Any attempt will generate the “Insufficient day‐trading buying power, skipping order” error.
Question: Pair trading is a well‐established arbitrage strategy—even using hourly or minute‐level data for execution. How can one work around this PDT limitation?