Day Trading Rules (only in Margin Accounts)
Day trading on margin refers to the practice of buying and selling the same stocks multiple times within the same trading day such that all positions are usually closed that trading day. Day trading using a cash account can easily lead to Good Faith Violations.
Learn more about Cash & Margin Account Day Trading Rules and Good Faith Violations.
Pattern Day Trader
When an investor makes more than 3 Day Trades in 5 business days, the account will be coded as a Pattern Day Trader (PDT). Once an account is coded as a Pattern Day Trader, total account equity needs to be maintained at above $25,000 in order to day trade. If the equity falls below $25,000, Equity Maintenance Call (EM Call) will be issued in the amount that equals to the difference between $25,000 and the account equity.
While the EM call is outstanding (account remains below $25,000), no day-trading will be allowed. A PDT who chose to still force in day-trading will result in Day Trading Margin Call (DT Call) and 90 Days Restriction (90DR) of liquidating-transactions only. To close out the outstanding calls and lift the restriction, the account needs to accomplish one of the below solutions:
- If the DT Call amount is greater than the EM Call amount, covering the DT Call will close out both calls and lift the 90DR.
- If the EM Call amount is greater than the DT Call amount, covering the EM Call will close out both calls and lift the 90DR.
- If the EM Call amount is greater than the DT Call amount, and the account is eligible for a PDT status removal (allowed once every 90 days), covering the DT Call and removing the PDT status will close out both calls and lift the 90DR.
Otherwise, the account needs to serve the 90 days period. After which, the outstanding calls will expire, and a request to lift the account restriction can be submitted and processed.
Day Trading Rules
The New York Stock Exchange ("NYSE") and the Financial Industry Regulatory Authority ("FINRA") amended their rules relating to margin requirements for accounts that engage in a pattern of day trading. These margin account day trading rules apply to all "Pattern Day-Traders" throughout the United States. Please note that Day Trading rules apply to Margin Accounts only.
The significant aspects of the day trading cash account rules are summarized below:
- The term "Pattern Day-Trader" is defined as any customer who executes four or more day trades within five business days, provided the number of Day-Trades is more than 6% of the total trades in the account during that period.
- Any account engaging in pattern Day Trading activity are subject to a minimum equity requirement of $25,000. Pattern Day Trading accounts with less than $25,000 in equity will not have day trading buying power.
- The sale of an existing position from the previous day and its subsequent repurchase is not considered a day trade.
- Day Trading Buying Power for equity securities will be four (4) times the NYSE excess as of the close of business on the previous day, and the "time and tick" method of calculating Day Trading is acceptable.
- If an account has an outstanding Day Trading Margin Call, Day Trading Buying Power will be reduced to two (2) times the NYSE excess, and the "time and tick" calculation method cannot be used while a Day Trading margin call is outstanding. The aggregate method (using the total of all day trades) will be used.
- If an account fails to meet a Day Trading margin call by depositing additional funds within 5 business days, Day Trading buying power will be reduced to 1 time NYSE excess for a period of 90 days (cash trades only), or until the call is met.
- Deposits of funds to meet minimum equity requirements or to meet Day Trading Margin Calls must remain in the customer's account and cannot be withdrawn for a minimum of two business days.
For a complete disclosure on Day-Trading Disclosure, please see the Day-Trading Risk Disclosure Statement.