Pattern Day Trader (PDT) Rule: Who Qualifies and What You Get
Learn how trading frequency affects your margin account and the equity requirements needed to maintain active trading status.
The Pattern Day Trader (PDT) rule is a regulation that determines how frequent trading activity affects your ability to trade using a margin account.
Who it's for
This rule applies to individuals who use a margin account—an account that allows you to borrow funds from a broker to trade—and execute four or more day trades within any five business days. Once you hit this frequency of trading, you are classified as a pattern day trader.
What you get
Once classified, you are permitted to continue your active trading style. However, to keep this status and continue trading frequently, you must maintain a minimum equity of $25,000 in your account.
What it costs you
The primary requirement is the maintenance of significant capital. You must ensure your account equity does not drop below the required threshold. If you fail to maintain this minimum equity, you may face account restrictions. You might also encounter a margin call, which is a requirement from your broker to add funds to your account to cover your positions.
The catch to know
A common misunderstanding is that the $25,000 equity rule applies to all types of trading accounts. This is not the case. The rule specifically targets the frequency of trades made within margin accounts; it does not apply to those using cash accounts.
How to apply
- Review your trading frequency to see if you perform four or more day trades in a five-business-day window.
- Confirm if your brokerage account is a margin account, as the rule specifically targets these accounts.
- Monitor your account equity to ensure it remains above the required minimum.
- Visit the official portal for more details: https://www.finra.org/investors/investing/investment-products/stocks/day-trading