Pattern day trader rule

  • This topic has 6 replies, 1 voice, and was last updated 5 days ago by James Barra.
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  • #180408 Reply
    Florrie

      I live in Nampa in the US and want to start trading online but I’ve started seeing stuff about a pattern day trader rule. Can someone please explain what it actually is and if it will impact me?

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      • #180425 Reply
        James Barra
        Moderator
          DayTrading.com Team

          Hi Florrie,

          This rule, established by the Financial Industry Regulation Authority (FINRA), applies to traders in the US with margin accounts, and allows you to trade with higher leverage (1:4) than otherwise may be available.

          Essentially, you may be classed as a ‘pattern day trader’ if you make over three day trades in five business days, provided the number of trades is over 6% of the total trades in your account during this period.

          To be a day trade, it must be in the same instrument in the same trading day, such as buying and then selling a stock (if you hold a position overnight it won’t count).

          If you are classed as a pattern day trader, there are various rules you must follow and things to be aware of, notably:

          • You must maintain an account balance of at least $25,000.
          • Your buying power will be 4x the NYSE excess as of the end of business on the previous day.
          • If your account already has an outstanding margin call, your buying power will be reduced to 2x the NYSE excess.
          • If you fail to meet a margin call within five business days, your buying power will be further reduced to 1x the NYSE excess for 90 days until you’ve met the call (you can make cash trades only).
          • After depositing funds to meet minimum equity requirements or margin calls the funds must stay in your account for at least two business days.

          You can find more information about the pattern day trader rule and other stipulations that apply in the US here.

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        • #180426 Reply
          Liam

            I would also add to the above that your trading firm may deem you a pattern day trader if they’ve given you training/education, which can be a real bummer if you’re a novice as you might still need a serious initial bankroll.

            It can suck but that’s the price you sometimes have to pay to day trade on margin in this blessed United States! Aren’t we lucky ey?!

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            • #180452 Reply
              James Barra
              Moderator
                DayTrading.com Team

                Yes, good point Lucas. We’ve heard of this as well.

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            • #180632 Reply
              Owen

                I would read the advice from FINRA about day trading before you start Florrie – https://www.finra.org/investors/investing/investment-products/stocks/day-trading

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              • #180904 Reply
                Florrie

                  Great, cheers for passing on guys.

                  It feels like the US have the toughest rules on day trading, though I guess it’s to protect the every day investor so I shouldn’t complain!

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                • #181122 Reply
                  Mateo

                    Does this rule apply in every state in the United States does anyone know?

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                    • #181194 Reply
                      James Barra
                      Moderator
                        DayTrading.com Team

                        Hi Mateo,

                        Yes, my understanding is that it does apply to every state in the US.

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