Pattern Day Trader Rule Explained
The pattern day trading rule so let s say you use a margin account to make at least four day trades in a five day period.
Pattern day trader rule explained. A day trade is when you purchase or short a security and then sell or cover the same security in the same day. Penny pro explains pattern day trader pdt rule. Pattern day trader pdt rule is a designation from the securities and exchange commission sec that is given to traders who make four or more day trades in their margin account over a five business day period. Pattern day trading is automatically identified by one s broker and.
The required minimum equity must be in the account prior to any day trading activities. Keep in mind that the pattern day trader rule is important for all day trading strategies. A pattern day trader pdt is a trader who executes four or more day trades within five business days using the same account. This rule represents a minimum requirement and some broker dealers use a slightly broader definition in determining whether a customer qualifies as a pattern day trader.
The pattern day trader pdt rule requires any margin account identified as a pattern day trader to maintain a minimum of 25 000 in account equity in order to day trade. According to the u s financial industry regulatory authority a pattern day trader is anyone who executes four or more day trades within five trading days. That means the pattern day trading rule can apply to you. Finra rules define a pattern day trader as any customer who executes four or more day trades within five business days provided that the number of day trades represents more than six percent of the customer s total trades in the margin account for that same five business day period.
You need to maintain a minimum account balance of 25 000. If you re going to be a day trader one of the most important things you need to understand in the stock market world is the pattern day trader rule. The financial industry regulatory authority finra defines a pattern day trader as a brokerage customer that executes more than three round trip trades during a rolling five business day period. Now the number of day traders must also represent over 6 of the trader s total trades in their.
A pattern day trader is subject to special rules. The pattern day trader rule can have a major effect on what happens in your trading account and whether or not you can continue to trade for that matter. However most swing trading strategies can be traded without triggering the pattern day trader rule.
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