Pattern Day Trader
RegulationsQuick Definition
A regulatory designation for traders who execute four or more day trades within five business days.
Detailed Explanation
The Pattern Day Trader (PDT) rule is a FINRA regulation requiring traders who make 4+ day trades in a 5-business-day period to maintain at least $25,000 in their margin account. This rule applies to margin accounts but not cash accounts. Day trades are defined as buying and selling the same security on the same day. The rule aims to protect inexperienced traders from the risks of day trading. Traders can avoid PDT restrictions by using cash accounts (with T+2 settlement), trading futures or forex (different rules), or maintaining the required balance. Violations can result in account restrictions.
Real Trading Example
A trader with $20,000 who makes 4 day trades on Monday would be flagged as PDT and required to deposit $5,000 or face restrictions.