Pattern Day Trader (PDT) Rule: Minimum Balance Requirement | TrendSpider Learning Center (2024)

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Pattern Day Trader (PDT) Rule: Minimum Balance Requirement | TrendSpider Learning Center? ›

In a margin trading account, a pattern day trader is subject to several rules, including the requirement to maintain a minimum equity balance of $25,000 at all times.

What Are the Requirements for Pattern Day Traders? First, pattern day traders must maintain minimum equity of $25,000 in their margin account on any day that the customer day trades.

What is a pattern day trader? If you make four or more day trades over the course of any five business days, and those trades account for more than 6% of your account activity over that time period, your margin account will be flagged as a pattern day trader account.

Under the PDT rules, you must maintain minimum equity of $25,000 in your margin account prior to day trading on any given day. If the account falls below the $25,000 requirement, you cannot day trade until you are back at or above the $25,000 minimum.

PDT Meaning

Once your account is labeled as a pattern day trader then you have to maintain at least $25,000 in equity in your account. The plus side to this is you will have more buying power available. For non day traders you only get 2:1 buying power but as a day trader you will get 4:1 day trading buying power.

Account suspension: In some cases, a brokerage firm may suspend your account if you repeatedly violate the PDT Rule or other trading rules. The suspension may last for a certain period of time, or the firm may terminate your account altogether.

Buy and swing trade overnight. Since the PDT rule only applies to day trades, you buy and sell a stock within the same day, there's a time loophole that works in your benefit. When you buy a stock overnight and sell the next morning, that does not count as a day trade.

Using a cash account is probably the easiest way to avoiding the PDT rule. The only set back with a cash account is you can only use settled funds. This means when you buy or sell a stock in a cash account, the money takes 2 days plus the trade (T + 2) date to settle before you can use them again.

Monitor your day trades.

Placing fewer than 4 day trades in any rolling 5 trading day period will help avoid a PDT flag.

How to escape PDT rule? ›

Another way to avoid the PDT rule is by opening a cash account instead of a margin account. With a cash account, there is no limit to the number of day trades as long as you have enough settled cash to pay for your purchases.

1. Capital Markets Elite Group (CMEG) If you're looking for a no-PDT broker, Capital Markets Elite Group (CMEG) is a viable option. Since this company operates outside the U.S. (it's based in the Cayman Islands), it's not subject to the same rules as U.S.-based brokerage firms.

There is nothing wrong with being a pattern day trader, but it does mean you have to follow day trading rules. The most significant rule that pattern day traders must follow is the $25,000 minimum account balance. Margin accounts that are not flagged as pattern day traders have a minimum account value of $2,000.

The PDT Rule primarily applies to margin accounts, where traders borrow funds from their broker to make trades. However, traders using cash accounts, where they trade solely with their own money without borrowing, are typically exempt from the PDT Rule.

This means you can close existing positions but can't open any new ones. The Equity Maintenance Call ends when either you bring the account equity above $25,000, or the PDT flag is removed from the account. A pattern day trading flag can only be removed one time from your account.

The $25k requirement for day trading is a rule set by FINRA. It's designed to protect investors from the risks of day trading. By requiring a minimum equity of $25k, FINRA ensures that investors have enough capital to absorb potential losses. But remember, even with $25k, day trading is still a high-risk activity.

A pattern day trader's account must maintain a day trading minimum equity of $25,000 on any day on which day trading occurs. The $25,000 account-value minimum is a start-of-day value, calculated using the previous trading day's closing prices on positions held overnight.

Minimum Daily Balance

This is how most checking account balances are measured. Your balance may drop below the required amount at any time as long as you meet the balance requirement at the end of the business day (usually 5 pm).

Financial regulations require you to have at least $25,000 in your brokerage account to be a day trader. You may want to have even more to give yourself a buffer against losses and to have money ready for trades.

While some traditional savings accounts have no minimum balance requirements, most of them do. Major national banks typically require a minimum balance of around $300 to $500 or more to avoid monthly service fees ranging from $5 to $12 or more.