[Lix]

Hello,

I’m thinking about opening a margin account because I’d like to trade (stocks) multiple times a day. For the PDT rule, I have to deposit a minimum of $25,000 into my account. With that said, let’s look at a hypothetical example…

1. I purchase a stock at $1.00 with all my balance. This will cost my $25,000 and I will have 25,000 shares.
2. One minute later the price of the stock goes from $1.00 to $0.90. I keep holding my position.
3. Another minute later the price of the stock goes from $0.90 to $1.10. At this point I sell all my position for a $0.10 profit.

The question is, will the broker terminate my position and/or issue me a margin call (or some other warning) at step #2 above, when the price of the stock falls to $0.90 even if I haven’t sold my position?

(Just to clarify, I do not borrow any stocks/money from the broker. I pay with my own funds. But since prices fluctuate, it can happen that the price of the stock goes down and at that given moment my total account balance will fall below 25 grand momentarily – which is a required minimum balance for margin accounts.) Will I get a termination/notice/call from the broker at that moment or the termination/notice/call will only occur after I sell my position and as a result my total account balance would be below $25,000?

Thanks.

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[Steve]

The PDT rule requires you to maintain AT LEAST $25,000 in account equity (cash + securities) at all times when actively day trading in a margin account.

In your example, my understanding is that a temporary intraday dip below $25K (e.g., when the stock drops to $0.90) will not trigger a margin call or automatic liquidation, AS LONG as you’re not borrowing funds and don’t execute a day trade during that time.

However, if you do place a day trade while your equity is below $25K (even briefly) then your broker may flag a PDT violation and restrict your account.

If I were you I’d speak directly to your broker to confirm how they enforce the PDT rule and ask:  If temporary equity dips below $25K (without trading) causes restrictions, and whether they issue warnings or freeze trading based on real-time equity.

You could even ask them whether a cash account might suit your needs better if you’re not using margin.

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[ABTrading 87]

It’s an absolute minefield the PDT stuff. What about always keeping a buffer above $25k to protect against price drops and then using stop-losses to make sure you don’t fall below the equity threshold??

 

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[Lix]

Thanks all for the replies!

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