What are the Pattern Day Trading rules that apply to margin accounts?
The Pattern Day Trading rule is set by FINRA (Rule 4210) and applies to all margin accounts. It limits how often you can make day trades unless you maintain a minimum equity balance.
What is a Day Trade?
A day trade occurs when you open and close the same security position on the same trading day.
Examples:
Buy 100 shares of XYZ in the morning → Sell them later that day.
Sell short 50 shares of ABC → Buy to cover those shares later that day.
Open a 4 leg DEF iron condor in one order→ Close that same spread in one order
How Many Day Trades Can I Make?
You can place up to 3 day trades in any rolling 5-business-day period without restriction.
Placing a 4th day trade in that period will flag your account as a Pattern Day Trader.
What Happens When I’m Flagged as a PDT?
You must have at least $25,000 in equity in your margin account at the start of each trading day to continue day trading without restriction.
If your equity falls below $25,000, you’ll be restricted from day trading until you meet the requirement again.
Why This Rule Exists
The PDT rule is meant to ensure frequent day traders have a sufficient equity cushion to help manage the risks of rapid trading.