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Pattern Day Trader Rule
The key day trading rule – is to maintain a minimum
account balance of $25,000.
The day Trading WEALTH learning program:
Each client day trader moves from paper trading (day trading with a simulator – first trading only 100 shares to learn the software, then 500 shares with emotion, then 1,000 shares with more emotion, all the while doing what’s needed to gain experience daytrading new school) to cash.
For beginners going cash, I recommend a trading account balance of $50,000; trading on the edge of $25,000 is not even close to the comfort zone you need for learning.
Remember, traders first need to learn to lose.That’s why we limit lot size to 100 shares per stock trade.
Then traders learn to win, then consistently win, here with 500 share lot size, then consistently and very profitably win with 1,000 shares a day trade.
As you progress from 100 shares, to 500 shares, then 1,000 shares a day trade, you will want a trading account of $100,000 to have buying power with stocks of all price levels.
Pattern Day Trader Rule – What Google Says
When you “do a Google” (use the Google AdWords keyword research tool), the terms with the most global and monthly clicks pattern day trading and day trader rule are: pattern day trading, day trading rules, daytrading rules, day trader rules, pattern day traders, pattern day trader, pattern day trade, day trade rules.
Below I have excerpted definitions and other day trading rules from three authority websites as they relate to pattern day traders aE” for your additional information.
Notice the terms being searched – day trading rules, daytrading rules, day trader rule, day trader rules, pattern day traders, pattern day trader, pattern day trade, day trade rules – are not the terms you find in the descriptions provided by these information sites.
This may be the disconnect between what we think we know and what we need to know that when bridged with this information allows us to play by the rules of the game of day trading stock.
Day Trading Margin Rules
From eOption – http://www.eoption.com/
The New York Stock Exchange (NYSE) and the Financial Industry Regulatory Authority (FINRA) have filed amendments to NYSE Rule 431 and NASD Rule 2520 with the Securities and Exchange Commission (SEC) which increase margin requirements for active security traders. As a result, effective August 27, 2001, all accounts identified as pattern day traders will be required to maintain a minimum of $25,000.00 in equity at all times. Pattern day traders whose equity falls below the $25,000.00 requirement must deposit the funds necessary to meet the equity minimum before normal trading can resume.
Pattern Day Traders
Under the amendments, “pattern day traders” are defined as those customers who day trade (buy and sell the same position within the same trading day) four or more times in five business days. In addition, if eOption knows or has a reasonable basis to believe that a client is a pattern day trader, the customer must be designated as a pattern day trader immediately, instead of delaying such determination for five business days.
Summary of Rule 431:
- A pattern day trader is defined as any customer who executes four or more day trades within five business days, provided the number of day trades is more than 6% of the total trades in the account during that period.
- Any accounts engaging in pattern Day Trading activity are subject to a minimum equity requirement of $25,000. Pattern Day Trading accounts with less than $25,000 in equity will not have any buying power until the minimum account equity of $25,000 has been met. The minimum equity must be in the margin type.
- The sale of an existing position from the previous day and subsequent repurchase is not considered a day trade.
- Day trading buying power for equity securities will be 4 times the NYSE excess as of the close of business on the previous day, and the time and tick method of calculating Day Trading is acceptable.
- If an account has an outstanding Day Trading margin call, Day Trading buying power will be reduced to 2 times the NYSE excess, and the time and tick calculation method cannot be used while a Day Trading margin call is outstanding. The aggregate method (using the total of all day trades) will be used.
- If an account fails to meet a Day Trading margin call by depositing additional funds within 5 days, Day Trading buying power will be reduced to 1 times NYSE excess for a period of 90 days, or until the call is met.
- Pattern day traders will be prohibited from utilizing cross guarantees to meet Day Trading margin calls or to meet minimum equity requirements.
- Deposits of funds to meet minimum equity requirements or to meet Day Trading margin calls must remain in the customer’s account and cannot be withdrawn for a minimum of two business days.
- The time and tick method will not be used for day trades executed away from First Southwest Company.
From Wikipedia, the Free Encyclopedia
Pattern Day Trader
“Pattern day trader is a term defined by the U.S. Securities and Exchange Commission to describe a stock market trader who executes 4 (or more) day trades in 5 business days in a margin account, provided the number of day trades are more than six percent of the customer’s total trading activity for that same five-day period.
As the trader is exposed to the danger of day trading and intraday risks and potential rewards, it is subject to specific requirements and restrictions.”
“A FINRA (NASD) rule that applies to any customer who buys and sells a particular security in the same trading day (day trades), and does this four or more times in any five consecutive business day period; the rule applies to margin, but not to cash accounts.”
“A pattern day trader is subject to special rules.”
“The main rule is that in order to engage in pattern day trading you must maintain an equity balance of at least $25,000 in a margin account. The required minimum equity must be in the account prior to any daytrading activities.”
From the Financial Industry Regulatory Authority (FINRA)
Day Trading Margin Requirements: Know the Rules
“We are issuing this investor guidance to provide some basic information about day trading margin requirements and to respond to a number of frequently asked questions that we have received. We also encourage you to read our Notice to Members and Federal Register notice about the rules.”
Summary of the Day-Trading Margin Requirements
“The rules adopt a new term “pattern day trader,” which includes any margin customer that day trades (buys then sells or sells short then buys the same security on the same day) four or more times in five business days, provided the number of day trades are more than six percent of the customer’s total trading activity for that same five-day period.
Under the rules, a pattern day trader must maintain minimum equity of $25,000 on any day that the customer day trades. The required minimum equity must be in the account prior to any day-trading activities.
If the account falls below the $25,000 requirement, the pattern day trader will not be permitted to day trade until the account is restored to the $25,000 minimum equity level.”
From the U.S. Securities & Exchange Commission (SEC)
Pattern Day Trader
“FINRA rules define a “pattern day trader” as any customer who executes four or more “day trades” within five business days, provided that the number of day trades represents more than six percent of the customer’s total trades in the margin account for that same five business day period.
This rule represents a minimum requirement, and some broker-dealers use a slightly broader definition in determining whether a customer qualifies as a “pattern day trader.”
Customers should contact their brokerage firms to determine whether their trading activities will cause them to be designated as pattern day traders.”
“A broker-dealer may also designate a customer as a “pattern day trader” if it “knows or has a reasonable basis to believe” that a customer will engage in pattern day trading. For example, if a customer’s broker-dealer provided day trading training to such customer before opening the account, the broker-dealer could designate that customer as a “pattern day trader.”
“Under FINRA rules, customers who are deemed “pattern day traders” must have at least $25,000 in their accounts and can only trade in margin accounts. For more information on pattern day traders and related FINRA margin rules, please read the SEC staff’s investor bulletin “Margin Rules for Day Trading“.
Then you have, NO Patter Day Trader Rule = just go to the beach,
John McLaughlin, StockCoach
Day Trader (Day Trading Stocks) – Consultant / Coach
Call for your Free Consultation ($500 value)
“Quite simply, John’s day trading systems work! His ability to understand the market and stock price action is uncanny, and his trading wealth learning program is what makes it all come together.”