Day Trading Requirements (PDT Rule)

In This Lesson

Understanding the Pattern Day Trader rule and requirements.

Duration: 25 min

Overview

Understanding the Pattern Day Trader rule and requirements. This lesson will provide you with practical knowledge and actionable insights you can apply to your trading immediately.

By the end of this lesson, you'll have a clear understanding of the concepts and be able to apply them in real trading scenarios. Let's dive into the details.

Key Concepts

PDT Rule Mechanics

Account making 4+ day trades in 5 business days with under $25,000 gets flagged and restricted.

Day Trade Buying Power

PDT accounts get 4x their excess maintenance margin for day trading purchases.

Good Faith Violations

Buying securities with unsettled funds then selling before settlement can trigger violations.

Liquidation Procedures

Brokers can force liquidation if PDT rules or margin requirements are violated.

Account Minimums and Restrictions

PDT accounts must maintain $25,000 minimum. Non-PDT accounts limited to 3 day trades per 5 business days.

Practical Application

Now let's put this knowledge into practice. Follow these steps to apply what you've learned:

1. Verify your broker's PDT rule implementation and monitoring tools
2. Set up automatic alerts when approaching 3 day trades in rolling 5-day period
3. Maintain account balance well above $25,000 to avoid accidental violations
4. Understand your broker's specific buying power calculations and restrictions
5. Learn what constitutes a day trade vs swing trade in your broker's system
6. Have backup plan if account falls below PDT threshold

Common Mistakes to Avoid

Violating PDT Rule Accidentally

Making a 4th day trade in 5 business days without realizing it, triggering account restrictions.

Using Exactly $25,000

Starting with minimum $25,000 then losing money and falling below PDT threshold.

Not Understanding Buying Power Rules

Confusion about intraday vs overnight buying power and liquidation requirements.

Key Takeaways

PDT rule compliance is mandatory - violations result in trading restrictions
Maintain significant buffer above $25,000 minimum to avoid issues
Buying power rules are complex - understand your specific broker's implementation
Track day trades carefully to avoid accidental rule violations
Have contingency plans for account balance management

Your Next Steps

Ready to continue your learning journey? Here's what to do next:

• Review this lesson's key concepts
• Complete the practical exercises
• Take notes on what you've learned
• Practice with a demo account
• Move on to the next lesson when ready