A FINRA rule requiring US margin accounts under $25,000 to make no more than three day trades in any five-business-day period.
A day trade is opening and closing the same position in the same day. Four or more in five business days flags the account as a pattern day trader, and if equity is under $25,000 the broker restricts it to closing trades until the balance is restored or 90 days pass.
The rule applies to stocks and options in margin accounts. It does not apply to futures-contracts, forex, or cash accounts (which have t-plus-one settlement limits instead). This is one reason small accounts gravitate to futures and prop-firms.
Example: with $12,000 in a margin account, you day trade Monday, Tuesday, and Wednesday. A fourth day trade on Thursday triggers PDT status and the broker locks new positions.
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.
Educational only, not advice. Spotted an error? Post in Site Feedback.