Pattern Day Trader

Regulation defined in FINRA Rule 4210, which requires those day trading US stocks or options to maintain account balance of at least $25,000.

Definition

It defines Pattern Day Trader as one who executes four or more intraday round-trip trades (buy then sell, or sell then buy on the same day) within five business days, and these trades represent more than 6% of his total number of trades during that period.

Trading Restrictions on Breach

When a trader’s activity qualifies him as Pattern Day Trader and his account balance is below $25,000, his broker should restrict this trader from opening new positions for 90 days, or until the balance gets to at least $25,000.

Background

The regulation is based on the assumption that traders with small accounts tend to be less sophisticated or skilled, and in worse position to withstand possible losses from day trading. It only applies to margin accounts (not cash accounts), and only to trading in US markets.

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