Pattern Day Trading

Pattern Day Trading Rules

The Pattern Day Trading rules were enacted by FINRA to require that minimum levels of equity be deposited and maintained in Day Trading accounts.

http://www.finra.org/investors/day-trading-margin-requirements-know-rules

What is a “Day Trade”?

FINRA rules define a Day Trade as the purchase and sale, or the sale and purchase, of the same security on the same day (regular and extended hours) in a margin account. This definition encompasses any security, including options. Just purchasing a security, without selling it later that same day, would not be considered a Day Trade.

What is a “Pattern Day Trader”?

FINRA provides that a Pattern Day Trader (“PDT”) is any margin account that executes four or more Day Trades within any rolling five business day period. So, an account can make up to three Day Trades in any five business day period without consequence but if a fourth (or more) are executed the account is designated (“Flagged”) as a Pattern Day Trader. If an account is Flagged as a PDT the Flag remains on the account for 90 calendar days, so long as it remains free of Pattern Day Trading.

What if an account is Flagged as a Pattern Day Trader?

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. Day trade equity consists of marginable, non-marginable positions, and cash . Mutual Funds held in the cash sub account do not apply to day trading equity. Also, funds held in the Futures or Forex sub-accounts do not apply to day trading equity. To avoid an account restriction, pattern day-trader accounts that fall below the $25,000 minimum equity requirement should not day trade.

What if an account is Flagged and the account equity is above $25,000?

The account can continue to Day Trade freely.

What if an account is Flagged and the account equity is below $25,000?

An account that is both A) Flagged as a Pattern Day Trader and B) has less than $25,000 equity will be issued a Day Trade Minimum Equity Call (“EM Call”). The Call does not have to be met with funding, but while in the Call the account should not make any Day Trades. If a Day Trade is made while in the Call the account will be set to Restricted - Closing Only.

How can an account get out of a Day Trade Minimum Equity Call?

An account will no longer be in an EM Call when either the Flag is removed from the account (which happens after 90 days) or the account equity is brought above $25,000.

What if an account executes a Day Trade while in an EM Call?

The account will be set to Restricted – Close Only. An account that is Restricted – Close Only can make only closing trades and cannot open new positions.

How can an account get out of a Restricted – Close Only status?

The account will remain Restricted until either the Flag is removed (which happens after 90 days) or the account value is brought above $25,000.

Are there any exceptions to the 90-day designation?

Can the PDT Flag be removed earlier? Because investors are sometimes unaware of or misunderstand FINRAs Day Trading rules each TD Ameritrade account has available a one-time Flag removal. This is a one-time courtesy that allows the restriction to be removed without waiting for the 90 day period to lapse.

Are Futures or Forex subject to the PDT rules?

Both Futures/Futures Options and Forex are regulated by the NFA, which has no rules on day trading. As such, Futures/Futures Options and Forex round trips don't count toward the PDT rules and funds covering margin on Futures/Futures Options and Forex positions don’t count toward the $25,000 FINRA equity requirement.

Margin trading increases risk of loss and includes the possibility of a forced sale if account equity drops below required levels. Margin is not available in all account types. Margin trading privileges subject to TD Ameritrade review and approval. Carefully review the Margin Handbook and Margin Disclosure Document for more details. Please see our website or contact TD Ameritrade at 800-669-3900 for copies.