Pattern day trader: Difference between revisions

Revision as of 20:34, 11 November 2020

Revision as of 19:37, 5 April 2021

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A pattern day trader is generally defined in FINRA Rule 4210 ([[Margin (finance)|Margin]] Requirements) as any customer who executes four or more round-trip day trades within any five successive business days.<ref name="FINRA 4210" /> FINRA Rule 4210 is substantially similar to New York Stock Exchange Rule 431.<ref name="ref4" /> If, however, the number of day trades is less than or equal to 6% of the total number of trades that [[Trader (finance)|trader]] has made for that five business day period, the trader will not be considered a pattern day trader and will not be required to meet the criteria for a pattern day trader.<ref name="ref5" />

A non-pattern day trader (i.e. someone with only occasional day trades), can become designated a pattern day trader anytime if hethey meetsmeet the above criteria. If the brokerage firm knows, or reasonably believes a client who seeks to open or resume trading in an account will engage in pattern day trading, then the customer may immediately be deemed to be a pattern day trader without waiting five business days.<ref name="ref6" />

==Round trip==

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==Day trading in cash accounts==

The Pattern Day Trading rule regulates the use of margin and is defined only for margin accounts. Cash accounts, by definition, do not borrow on margin, so day trading is subject to separate rules regarding Cash Accounts. Cash account holders may still engage in certain day trades, as long as the activity does not result in [[Free riding (stock market)|free riding]], which is the sale of securities bought with unsettled funds. An instance of free-riding will cause a cash account to be restricted for 90 days to purchasing securities with cash up front. Under Regulation T, brokers must freeze an investor's account for 90 days if he or sheinvestor sells securities that have not been fully paid (i.e. paid for with unavailable funds). During this 90-day period, the investor must fully pay for any purchase on the date of the trade.<ref name="ref10" />

==References==