What is the Pattern Day Trading (PDT) Rule and How it Works

The pattern day trading (PDT) rule is a regulation enforced by the Financial Industry Regulatory Authority (FINRA) that affects traders who buy and sell securities in a margin account. The rule is intended to protect inexperienced traders from the risks associated with day trading and requires you to maintain a minimum account balance of $25,000 if you make more than three day trades in a five-day period.

A day trade is defined as the purchase and sale of the same security on the same trading day. If you make more than three day trades in a five-day period and do not meet the $25,000 account balance requirement, you will be classified as a pattern day trader and be subject to restrictions.

I’ve been classified as a Pattern Day Trader. Now What?

Once you are classified as a pattern day trader, you will be required to maintain a minimum account balance of $25,000 for 90 days or until you cease to be classified as a pattern day trader. You will also be restricted from making any day trades for 90 days unless you have the required account balance. Most brokers have a mulligan if you become a Pattern Day Trader or break the PDT rule for trading. When I say mulligan, I mean a second chance. Some brokers realize that traders simply make mistakes and may not have been informed of their day trades count. Some brokers list your completed day trades in the dashboard. If you are classified as a Pattern Day Trader, don’t panic. Contact your broker and tell them what happened. Most likely, they will be able to reset your PDT.

The PDT rule is designed to prevent inexperienced traders from taking on excessive risk by engaging in day trading without proper knowledge or resources. While the rule may limit the trading activities of some traders, it also serves as a safeguard against potential losses that could result from excessive trading.

The pattern day trading rule is a regulation designed to protect inexperienced traders from the risks associated with day trading. If you make more than three day trades in a 5 day period, you must maintain a minimum account balance of $25,000 or be subject to restrictions.