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Citations go immediately after punctuation per MOS:REFPUNCT. Rm duplicate links and mv other links to first instance per MOS:DUPLINK. Avoid slashes per MOS:SLASH. Fix Mac-style quotes per MOS:QUOTEMARK. →Day trading buying power: Rm uncited section. Exact buying-power requirements are up to the brokerage anyway. |
Rm duplicate links per MOS:DUPLINK. Citations go immediately after punctuation per MOS:REFPUNCT. |
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'''Pattern day trader''' is a [[
A FINRA rule applies to any customer who buys and sells a particular security in the same trading day (day trades), and does this four or more times in any five consecutive business day period; the rule applies to margin accounts, but not to cash accounts. A pattern day trader is subject to special rules. The main rule is that in order to engage in pattern day trading you must maintain an equity balance of at least $25,000 in a margin account. The required minimum equity must be in the account prior to any
The minimum equity requirement in FINRA Rule 4210 was approved by the [[Securities and Exchange Commission]] (SEC) on February 27, 2001 by approving amendments to NASD Rule 2520.<ref name="ref2" />
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==Round trip==
A '''round trip''' is the purchase and subsequent sale of
Day trading refers to buying and then selling or selling short and then buying back the same security on the same day.<ref name="ref7" /> Interpretation for more complex situations may be subject to interpretation by an individual brokerage firm. For example, if you buy the same stock in three trades on the same day, and sell them all in one trade, that can be considered one day trade<ref name="ref8" /> or three day trades.<ref name="ref9" /> If you buy stock in one trade and sell the position in three trades, that is generally considered as one day trade if all trades are done on the same day. Three more day trades in the next four business days will subject your account to restrictions (you can only close existing positions or purchase with available cash up front) for 90 days, or until you deposit enough to have $25,000 in your account, whichever comes first. Day trading also applies to trading in option contracts. Forced sales of [[securities]] through a [[margin call]] count towards the day trading calculation.
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The rule may also adversely affect position traders by preventing them from setting stops on the first day they enter positions. For example, a position trader may take four positions in four different stocks. To protect his capital, he may set stop orders on each position. Then if there is unexpected news that adversely affects the entire market, and all the stocks he has taken positions in rapidly decline in price, triggering the stop orders, the rule is triggered, as four day trades have occurred. Therefore, the trader must choose between not diversifying and entering no more than three new positions on any given day (limiting the diversification, which inherently increases their risk of losses) or choose to pass on setting stop orders to avoid the above scenario. Such a decision may also increase the risk to higher levels than it would be present if the four trade rule were not being imposed.
The rule however does allow for an exception. Position traders who have violated the rule (having less than $25,000 in a margin account and having made at least 4 round-trip trades in five consecutive trading days) may advise their broker of their true intention and the fact that their trading strategy is not a day trading strategy, and the firm can decide to allow the activity to continue. The rule represents a partial limit to speculation by means of day trading.<ref>{{cite web|title=Day-Trading Margin Requirements: Know the Rules|url=http://www.finra.org/investors/day-trading-margin-requirements-know-rules|website=FINRA.org|publisher=[[Financial Industry Regulatory Authority]]|date=2020|accessdate=2020-03-03}}</ref>
==References==
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<ref name="ref3">{{cite web|title=FINRA Rule 4210 Margin Requirements|url=http://finra.complinet.com/en/display/display.html?rbid=2403&element_id=9383}}</ref>
<ref name="ref4">{{cite web|title=NYSE Rule 4210 incorporated into the FINRA Rule Book|url=http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=6560}}</ref>
<ref name="ref5">{{cite web|title=Amendments to Rule 431 ("
<ref name="ref6">{{cite web|title= Margin Rules for Day Trading |url=https://www.sec.gov/investor/alerts/daytrading.pdf}}</ref>
<ref name="ref7">{{cite web|title=Day Trading Margin Requirements: Know the Rules|url=http://www.finra.org/investors/smartinvesting/advancedinvesting/daytrading/p005906}}</ref>
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