Pattern Day Trader

What Is a Pattern Day Trader (PDT)?

A pattern day trader (PDT) is a regulatory designation for a margin account that executes four or more day trades within five business days, when those day trades represent more than 6% of the account’s total trading activity over the same period. When an account meets this definition, the broker will usually flag it as a PDT and apply specific margin and trading restrictions.

Key takeaways

• A PDT must maintain minimum equity of $25,000 in the margin account (cash and eligible securities may count).
• PDTs can leverage up to four times their maintenance margin excess; non‑PDT margin accounts are generally limited to two times that excess.
• FINRA sets the PDT rule, but brokerage firms may impose stricter rules or permit customers to self‑identify as day traders.
• If a PDT receives a margin call, they have five business days to satisfy it; failure to do so can lead to trading restrictions or a 90‑day cash‑restricted account.
• PDT rules apply to stock and equity options trading.

How day trades are defined

A day trade is opening and closing a position in the same security on the same trading day (buy then sell, or sell short then buy to cover). Simply buying without selling that same day is not a day trade. Trades that were opened on a prior day (overnight positions) and then closed are not counted as day trades for the purpose of PDT designation.

FINRA rules and broker practices

• The Financial Industry Regulatory Authority (FINRA) sets the standard PDT definition and the $25,000 minimum equity requirement.
• The $25,000 can be a combination of cash and eligible securities. If account equity falls below $25,000, the account cannot make further day trades until the minimum is restored.
• Brokers may apply a broader definition of PDT activity or stricter minimums, and they track trading to identify PDTs automatically.
• Some brokerages allow clients to self‑identify as day traders so that rules and margin availability can be applied appropriately.

Margin calls and restrictions

• If a PDT receives a day‑trading margin call, they generally have five business days to meet it.
• Until the call is met, trading may be limited (often to two times maintenance margin excess).
• Failure to cure the call within the required time frame can result in a 90‑day cash‑restricted account or other trading limitations until issues are resolved.

Example

Imagine a trader has $100,000 in a margin account and the account must maintain $25,000 in equity. If the trader’s equity is $30,000, they have $5,000 in excess equity. As a PDT, they could use up to four times that excess (4 × $5,000 = $20,000) for day trades. A non‑PDT with the same excess equity would typically be limited to two times excess (2 × $5,000 = $10,000). Greater buying power can increase both potential gains and potential losses.

Common questions

Why did my broker flag me as a PDT?
* Brokers automatically flag accounts that execute four or more day trades within five business days and where those trades exceed 6% of the account’s trading activity during that period.

Do I need to worry if I’m flagged?
* Not necessarily, but the PDT designation brings requirements (notably the $25,000 minimum) and potential restrictions if equity falls below that level. Contact your broker if you want to change how your account is classified.

If I stop day trading, will the flag be removed?
* Brokers generally retain the PDT designation if they have a “reasonable belief” the account is a day trader based on past activity. If you stop day trading, contact your brokerage to discuss recoding the account.

Bottom line

Pattern day trading rules are designed to limit the risks of frequent intraday trading by requiring higher minimum equity and imposing margin-related constraints. If your trading activity approaches or exceeds the PDT thresholds, monitor account balances closely and consult your broker about margin rules and any firm‑specific requirements.