Introduction to Day Trading

May 14, 2020

Day trading refers to buying then selling or selling short then buying the same security on the same day. Just purchasing a security, without selling it later that same day, would not be considered a day trade.

Does the rule affect short sales?
As with current margin rules, all short sales must be done in a margin account. If you sell short and then buy to cover on the same day, it is considered a day trade.

Does the rule apply to day-trading options?
Yes. The day-trading margin rule applies to day trading in any security, including options.

What is a pattern day trader?
You will be considered a pattern day trader if you trade four or more times in five business days and your day-trading activities are greater than six percent of your total trading activity for that same five-day period.

Your brokerage firm also may designate you as a pattern day trader if it knows or has a reasonable basis to believe that you are a pattern day trader. For example, if the firm provided day-trading training to you before opening your account, it could designate you as a pattern day trader.

Would I still be considered a pattern day trader if I engage in four or more day trades in one week, then refrain from day trading the next week?
In general, once your account has been coded as a pattern day trader, the firm will continue to regard you as a pattern day trader even if you do not day trade for a five-day period. This is because the firm will have a “reasonable belief” that you are a pattern day trader based on your prior trading activities. However, we understand that you may change your trading strategy. You should contact your firm if you have decided to reduce or cease your day trading activities to discuss the appropriate coding of your account.

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See also

Day Trading Requirements

Day Trading Requirements

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Day Trading Requirements

Why Day Trading Margin Requirements are Important

Market BasicsStocks & ETFsThe primary purpose of the day-trading margin rules is to require that certain levels of equity be deposited and maintained in day-trading accounts, and that these levels be sufficient to support the risks associated with...

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Day Trading Requirements

Day-Trading Minimum Equity Requirements

Market BasicsStocks & ETFsThe minimum equity requirements on any day in which you trade is $25,000. The required $25,000 must be deposited in the account prior to any day-trading activities and must be maintained at all times. Why is the minimum...

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