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Pattern Day Trader Rule

OVERVIEW

The Pattern Day Trader (PDT) rule is a FINRA regulation requiring any margin account that executes four or more day trades within a rolling five-business-day period to maintain a minimum account equity of $25,000.

A day trade is defined as the purchase and subsequent sale — or short sale and subsequent purchase — of the same security on the same trading day within a margin account.

Note

Once an account is flagged as a PDT account, it must maintain $25,000 in equity or it is restricted to closing transactions only.

THE EXACT THRESHOLD

The PDT designation triggers when both conditions are met simultaneously:

  1. The account executes four or more day trades within any rolling five-business-day window.
  2. Those day trades represent more than 6% of total trading activity in that same five-day window.

Tip

The 6% carve-out means an account executing dozens of trades per day is not automatically flagged by four day trades alone. However, for most retail traders executing fewer than 70 total transactions per week, four day trades will exceed 6% and trigger PDT designation.

Once flagged, if account equity drops below $25,000, the broker restricts the account to closing trades only. Depositing $25,000 in cash lifts the restriction immediately.

WORKED EXAMPLE

A trader holds a $22,000 Robinhood margin account and executes the following:

Day Trade Day Trade Count
Monday Buys and sells TSLA intraday 1
Tuesday Buys and sells NVDA intraday 2
Wednesday Buys and sells AMZN intraday 3
Thursday Buys and sells AAPL intraday 4 — PDT triggered

On Thursday's fourth day trade, the broker automatically flags the account as a PDT account. Since account equity ($22,000) is below $25,000, the account is immediately restricted to closing-only transactions.

Note

The trader cannot open new positions until depositing an additional $3,000 or the 90-day restriction period expires.

COMMON WORKAROUNDS

Method Description Key Limitation
Cash account No day trade limit; PDT rule applies to margin accounts only T+1 settlement — proceeds unavailable until next business day
Multiple brokers Each broker tracks day trades independently; distributing activity across brokers is legal Operationally complex
Futures trading Equity futures (ES, NQ, MES, MNQ) are not subject to PDT rules; can day-trade with a $500 account Futures margin set by exchanges, not FINRA
Offshore brokers Non-US brokers not subject to FINRA regulations Different regulatory protections and elevated risk

WHY THE RULE EXISTS

FINRA adopted the PDT rule in 2001 following the dot-com bubble collapse, during which retail traders using margin accounts incurred catastrophic losses through rapid short-term speculation.

The $25,000 threshold was set to ensure day traders maintain a capital cushion to absorb intraday margin fluctuations.

Note

The threshold has never been adjusted for inflation. $25,000 in 2001 is equivalent to approximately $44,000 in 2026 purchasing power.

LIMITATIONS AND COMMON MISCONCEPTIONS

Misconception Clarification
The rule applies per person The rule applies per broker account. An individual with two separate margin accounts can day-trade from each without triggering PDT status, provided each independently stays under four day trades in five days.
Each options leg counts as a separate day trade Opening and closing a multi-leg options spread intraday counts as one day trade, not two or four.
$25,000 must be deposited in cash The $25,000 requirement is a minimum equity threshold. Existing long positions at market value count toward the balance.