The intraday purchasing limit for a pattern day trader, typically four times the prior day's closing maintenance excess, available only for positions closed the same day.
It is computed from the previous close, not from live equity, so a profitable morning does not increase it. Exceeding it produces a day-trading call, and until it is met buying power is usually cut to twice maintenance excess for 90 days.
The four-times figure also makes it very easy to breach the pattern-day-trader-rule's $25,000 minimum indirectly, by closing a day trade that drops equity below the floor.
Example: prior close maintenance excess of $40,000 gives $160,000 of day-trade buying power. A trader buys $90,000 and later $95,000 of stock in the same session while holding the first. The $185,000 peak exceeds the limit by $25,000, producing a day-trading call for roughly $6,250.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Margin and leverage. A $5,000 deposit can control a $100,000 position, which is 20:1 leverage. Because the loss is measured on the full $100,000, a 2.5% move against you halves the deposit and brings a margin call, and a 5% move uses all of it.Buying a call: payoff at expiry. A 105-strike call bought for 3 loses that whole 3 if the price finishes at or below 105, breaks even at 108, then gains a dollar for every dollar higher. The loss is capped at the premium; the upside is not capped.
Educational only, not advice. Spotted an error? Post in Site Feedback.