PDT Rule - Pattern Day Trading Rule And How to Avoid Breaking It

 


Here’s what you need to know.


  • It is in regard to MARGIN ACCOUNTS ONLY - if you trade in the limit of your own money - you will be fine 
  • If you execute 4 or more intraday round trips 
  • within 5 rolling business days and 
  • your account value is less than $25,000 - your account is flagged.
 Keep in mind that you don’t have to borrow on margin to violate the pattern day trader rule

What Are the Consequences?

  • For first-time offenders, the consequences might not be so bad. 
  • You will be flagged as a pattern day trader (in the violator sense) just so your broker can watch your activities for any consistent or repeat offenses.
  • You may subject to a minimum equity call, a minimum account value of $25,000 (even if you don’t intend to day trade on a regular basis). 
  • Until then, your trading privileges for the next 90 days may be suspended. You could be limited to closing out your positions only. And your margin buying power may be suspended, which would limit you to cash transactions. If you make an additional day trade while flagged, you could be restricted from opening new positions.

If you do want to officially day trade and apply for a margin account, your buying power could be up to 4 times your actual account balance. You could inform your broker (saying “yes, I’m a day trader”) or day trade more than 3 times in 5 days and get flagged as a pattern day trader. This allows you to day trade as long as you hold a minimum account value of $25,000, and keep your balance above that minimum at all times


 


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