What is the 'pattern day trader' rule?

Question

S ScienceNerd010 on 26.10.2023 Posts: 63

So, I've been hearing a lot about this 'pattern day trader' rule lately and I'm super interested in the stock market, but honestly, I have no clue what this rule means. I mean, it sounds like something that might have a big impact on trading, especially for someone like me who's just starting out. Can someone please shed some light on this? What exactly is the 'pattern day trader' rule and how does it affect traders, especially beginners like me? Would really appreciate any insights or personal experiences you guys could share. Don't hold back on the tough stuff, I'm here to learn.

Trading-Setup.com - Empower your Trades! · Accepted Answer

The 'pattern day trader' rule requires traders to maintain a minimum equity of $25,000 in their account if they execute four or more day trades within five business days.
This rule aims to protect individual investors from taking on too much risk and to prevent excessive trading based on short-term market fluctuations.
Traders who are classified as pattern day traders are subject to higher margin requirements and may face restrictions if their account balance falls below the required minimum.

A ArtAficionado88 on 06.12.2023 Posts: 56 · Accepted Answer

The pattern day trader (PDT) rule is a regulatory measure set by FINRA in the US, which applies to those trading in American stock markets. If you make four or more day trades (buying and selling a stock on the same day) within five business days, and those trades are more than six percent of your total trades in that same period, you\'ll be tagged as a pattern day trader. The kicker is, once you\'re labeled as a PDT, you need to maintain a minimum account balance of $25,000. If you dip below that, you won't be able to day trade. It's designed to discourage excessive trading by those who might not have the assets to cover high-risk trades. It's pretty essential to be aware of it to avoid any unwanted restrictions on your account. If you're just starting, make sure to keep your day trading activity in check or consider swing trading strategies, where you hold stocks for days or weeks. It helps dodge the rule and still get your feet wet in the trading world.