Pattern Day Trader Rule: What It Is and How to Avoid Triggering It
The PDT rule requires $25,000 equity for 4+ day trades in 5 days in a margin account. Learn what triggers it and how to legally avoid the restriction.
Pattern Day Trader Rule: What It Is and How to Avoid Triggering It
The Pattern Day Trader (PDT) rule catches many new traders off guard. Here is exactly what it is and how to work within it.
What the PDT Rule Is
FINRA Rule 4210 defines a pattern day trader as someone who executes four or more day trades within five business days in a margin account, provided those day trades represent more than 6% of their total trading activity. Once flagged, your broker requires a minimum equity of $25,000 in the account.
What Counts as a Day Trade
A day trade is buying and selling (or short selling and covering) the same security on the same trading day. Buying 100 shares of AAPL at 10am and selling at 2pm the same day is one day trade. Buying across three separate orders and selling in one is still one day trade — it counts per security per day.
Ways to Avoid the PDT Rule
Use a cash account: The PDT rule applies only to margin accounts. In a cash account, you can day trade freely — but you must wait for funds to settle (T+2) before reusing them. Limit yourself to 3 day trades per 5-day period: Track carefully. Hold positions overnight: Convert a would-be day trade into a swing trade. Use multiple brokers: Each broker tracks PDT status independently. Trade futures or forex: These markets have no PDT rule and are accessible with small account sizes.
What Happens If You Get Flagged
If you are flagged as a PDT without $25,000 in equity, your account is restricted to closing transactions only for 90 days. You cannot open new positions. Contact your broker immediately — some will give you a one-time courtesy removal of the PDT flag.
The $25,000 Threshold in Practice
The $25,000 must be maintained at the start of each trading day. If your account drops below this level due to losses, you cannot day trade until you deposit enough to bring it back above the threshold.
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