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Start globalization by clarifying that this is a US topic (as the article stands now, anyway). Use American English and mdy dates due to strong national ties. →Rationale: "Intraday" is a word. Rm disputed "true intentions" clause per talk. |
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{{Use mdy dates|date=June 2020}}
In the [[United States]], a '''pattern day trader''' is a [[Financial Industry Regulatory Authority]] (FINRA) designation for a [[stock
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 day trading activities. Three months must pass without a day trade for a person so classified to lose the restrictions imposed on them. Pursuant to NYSE 432, [[brokerage firm]]s must maintain a daily record of required margin.
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==Definition==
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="ref3" /> 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 he meets 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" />
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==Requirements and restrictions==
Under the rules of [[NYSE]] and Financial Industry Regulatory Authority, a
* '''Day trading minimum equity''': the account must maintain at least USD $25,000 worth of [[Ownership equity|equity]].
* '''Margin call to meet minimum equity''': A day trading minimum equity call is issued when the pattern day trader account falls below $25,000. This minimum must be restored by means of cash deposit or other marginable equities.
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==Rationale==
{{Multiple issues|section=yes|
{{POV section|date=December 2019}}
{{Unreferenced section|date=June 2020}}
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While all investments have some inherent level of risk, day trading is considered by the SEC to have significantly higher risk than buy and hold strategies. The Securities and Exchange Commission (SEC) approved amendments to [[self-regulatory organization]] rules to address the intraday risks associated with customers conducting day trading. The rule amendments require that equity and maintenance margin be deposited and maintained in customer accounts that engage in a pattern of day trading in amounts sufficient to support the risks associated with such trading activities.
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==References==
{{Reflist|refs=
<ref name="ref2">{{cite web|title=FINRA Notice: SEC Approves Proposed Rule Change Relating To Day-Trading Margin Requirements|url=http://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p003881.pdf}}</ref>
<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>
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