Pattern Day Trader (PDT) Rule

The pattern day trader rule flags any margin account that places 4 or more day trades within 5 business days, when those day trades exceed 6% of the account's total trades in that window. Once flagged, FINRA rules require the account to maintain at least $25,000 in equity to continue day trading; below that, the broker restricts new day trades until the balance is restored.

A day trade means opening and closing the same position in the same session — buying 500 shares at 10:00 a.m. and selling them at 2:00 p.m. is one day trade regardless of how the sale is split up. The rule applies only to margin accounts. Cash accounts are exempt from PDT but face their own constraint: proceeds must settle (T+1 for US stocks) before the funds can be reused, and violating that triggers good-faith violations.

Traders under $25,000 typically ration their three day trades per rolling 5-day window, trade in a cash account against settled funds, or hold positions overnight — each a real constraint on strategy, which is the rule's stated point: discouraging undercapitalized rapid-fire trading.