Pattern Day Trader

Pattern Day Trader refers to a regulatory designation for a trader who executes four or more day trades within a five-business-day period in a Margin account, provided the number of day trades is more than 6% of their total trading activity during that period. This designation is defined by the Financial Industry Regulatory Authority (FINRA).

To be classified as a Pattern Day Trader, the trader must maintain a minimum Equity of $25,000 in their Margin account at all times. If the Equity falls below this threshold, the trader may be restricted to liquidating trades only, and they may not be able to engage in further day trading until the account is restored to the minimum balance.

Examples:

• A trader buys and sells Shares of Company A four times in one week, thus classifying them as a Pattern Day Trader.
• If a trader conducts only three day trades in a week, they are not considered a Pattern Day Trader, even if those trades are part of a larger trading strategy.

Cases:

• A trader with a Margin account has $20,000 and executes five day trades in one week. They are classified as a Pattern Day Trader and must deposit an additional $5,000 to meet the Equity requirement.
• A trader consistently day trades but keeps their account balance above $25,000, thus enjoying the flexibility of day trading without restrictions.